Mineral Extraction Allowance

Mineral Extraction Allowance (MEA) is an allowance that can be claimed by persons engaged in the trade of mineral extraction. Only persons actually carrying on the trade, and not lessors of mineral-bearing land, are entitled to make claims. Claims can also be made only when there is actual trade; activities such as mineral exploration are not considered “trade.”

The trade of mineral extraction means trade involving working with a source of mineral deposits. Mineral deposits include “any natural deposits capable of being lifted or extracted from the earth and geothermal energy whether in the form of aquifers, hot dry rocks or otherwise.” Examples include sand and gravel mining, oil extraction and hard rock mining, in addition to geothermal energy.

While exploration itself is not considered trading, allowance can be claimed on exploration expenditure when trading starts. “Qualifying expenditure” for claiming allowances include:
• The acquisition of mineral deposits and rights.
• Exploration and development expenditure.
• Restoration costs.
• Certain pre-trading expenditure.
• Planning permission.

Pre-trading expenditure include plant and machinery that might not be in existence at the time of commencing trade. Cost of plant and machinery used during the exploration but disposed off before commencement of trade is included in qualifying expenditure for a balancing allowance claim. Any disposal proceeds such as sales or insurance proceeds are deducted from the costs and only the net amount is included.

Licences and planning permissions for working the mineral sources typically include obligations to restore the site after the extraction has ceased. Provided the restoration costs are incurred within three years after ceasing the trade, such restoration costs are also included as qualifying expenditure.

There are rules for including and excluding different types of expenditure while computing qualifying expenditure. Details can be found on the relevant HMRC Web page CA50200.

We will look at the regulations for claiming Mineral Extraction Allowances in a separate article.

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