Appendix 2: 2005 Pre-Budget Report and 2006 Budget

Ring Fence Exploration Supplement (RFES)

The Exploration Expenditure Supplement (EES) – which was introduced on 1 January 2004 – was replaced by the Ring Fence Expenditure Supplement (RFES) on 1 January 2006. The RFES is aimed at companies exploring for oil or gas or in the development phase which do not yet have any taxable income against which to offset their exploration and appraisal capital allowances. The main difference with the EES is that RFES applies not only to exploration and appraisal but to all expenditure which has not already been offset against taxable income. The RFES increases the value of unused allowances forward from one period to the next by a compound 6% per year. Six years is the time limit but it does not need to be consecutive.