Petroleum revenue tax


Petroleum revenue tax

Petroleum revenue tax (PRT) is a direct tax collected in the United Kingdom. It was introduced under the Oil Taxation Act 1975, soon after Harold Wilson's Labour government returned to power and in the immediate aftermath of the 1973 energy crisis, and was intended to ensure "fairer share of profits for the nation" from the exploitation of the UK's continental shelf, while ensuring a "suitable return" on the capital investment by oil companies.

PRT is charged on "super-profits" arising from the exploitation of oil and gas in the UK and the UK's continental shelf. After certain allowances, PRT is charged at a rate of 50% on profits from oil extraction. PRT is charged by reference to individual oil and gas fields, so the costs related to developing and running one field cannot be set off against the profits generated by another field. PRT was abolished on 16 March 1993 for all fields given development consent on or after that date, but continues in existence for fields established before that date. At the same time, the rate of PRT was reduced from 75% to 50%, but various reliefs from PRT for expenditure on exploration and appraisal were withdrawn.

PRT is charged in addition to corporation tax, which is also payable by companies involved in oil exploration and production, although PRT is deductible in calculating profits for corporation tax purposes. Profits from oil extraction activities are subject to a corporation tax "ring fence", which means that profits from these activities cannot be reduced by any losses or other tax reliefs from other business activities (the corporation tax ring fence fences off the whole oil exploration trade, not individual fields like PRT). Profits within the corporation tax "ring fence" have been subject to a supplementary corporation tax charge of 10% in addition to the usual 30% rate since 17 April 2002. This supplementary charge was increased to 20% in the Pre-Budget Report of December 2005, with effect from 1 January 2006.

The supplementary charge to corporation tax was introduced to replace the 12½% royalty that was charged on the gross value of oil and gas won, which was abolished from 1 January 2003. The royalty was not a tax, as such, but was paid in exchange for the right to extract oil and gas which, under UK law, belong to the Crown. The royalty had been abolished for all oil fields given development consent after 1 April 1982, but continued to apply to existing fields after that date until 2003.

PRT is administered by the Energy Group of the Large Business Service of HM Revenue & Customs (formerly the Oil Taxation Office of the UK Inland Revenue). This group also administers the "ring fenced" corporation tax paid by oil exploration companies, and previously administered the royalty charged on the gross value of oil and gas won.

References

* [http://www.hmrc.gov.uk/manuals/otmanual/index.htm Oil Taxation Manual]
* [http://www.hmrc.gov.uk/international/ns-fiscal2.htm Taxation of UK oil production] (as at April 2003)
* [http://www.hmrc.gov.uk/international/ns-fiscal3.htm The North Sea Fiscal Regime] (as at April 2003)

External links

* [http://www.hmrc.gov.uk/oto/ Energy Group (formerly Oil Taxation Office)]


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