Purchasers of oil and gas licences after 1st April 2012 need to be aware of new provisions in the Finance Act 2012 relating to “fixtures”.
There is now a requirement for a buyer of plant or machinery which is classified as a fixture to make a joint election with the seller within two years of the date of acquisition to fix the allocation of the consideration to that plant or machinery (or alternatively either party can make an application to the Tax Tribunal within two years of acquisition, for a ruling on the level of consideration which should be allocated to plant).
In the absence of a timely election or ruling plant and machinery allowances will not be available for that element of the consideration (although this would not prevent a seller from having to recognise an appropriate level of disposal proceeds).
This measure is applicable to all types of industry including oil and gas companies. In particular where a company acquires an interest in an oil or gas licence it will now be important that the nature of the assets being acquired is carefully reviewed and the fixtures element of any plant identified.
It is worth remembering that the term “fixture” is wider in scope than constituting just something which is attached to a building; the definition in section 173 CAA 2001 includes any plant or machinery installed or otherwise fixed in or to land which becomes in law part of that land
In the case of plant and machinery fixed in buildings on land, such as terminals, the position should be clear. Whereas in the past seller and purchaser would typically agree an overall allocation of consideration to plant and machinery on a just and reasonable basis such that a fixtures election under s198 CAA 2001 was rare, it will generally now be necessary for such an election to be made as a matter of course. It is important to note that such an election can include an allocation which differs from the just and reasonable amount as the buyer and seller jointly fix the amount so allocated (although the allocation is still restricted by the cost to the seller).
The position with regard to plant or machinery situated offshore such as platforms and pipelines is less clear. We understand HMRC take the view that structures such as platforms which are fixed to the seabed within the 12 mile limit constitute fixtures for these purposes such that an appropriate election should be made where the acquisition includes such items. For plant located outside the 12 mile limit we understand that HMRC’s view is that such structures do not become part of the land, as a matter of law, such that the fixtures rules have no application.
The position with regard to offshore pipelines is unclear, but it is questionable as to whether these would properly represent a fixture for the purposes of these provisions.
Given the majority of UK oil and gas licence transactions would not include a significant element of plant and machinery situated onshore or within the 12 mile limit these rules will not be relevant for many licence transactions, but for those where such plant is in place it will be crucial for the purchaser to ensure that the sale and purchase agreement includes appropriate wording to enable them to make a relevant timely election with the seller and thereby to secure the allowances they expect.
CW Energy LLP
August 2012