Oil and gas—corporation tax and the supplementary charge
Produced in partnership with Phil Greatrex of CW Energy LLP

The following Tax practice note produced in partnership with Phil Greatrex of CW Energy LLP provides comprehensive and up to date legal information covering:

  • Oil and gas—corporation tax and the supplementary charge
  • Corporation tax on profits from oil and gas
  • The ring fence
  • Capital allowances
  • Research and development allowances (RDAs)
  • Plant and machinery
  • Mineral extraction allowances (MEAs)
  • Losses
  • Ring fence expenditure supplement
  • Ring fence reinvestment relief
  • More...

Oil and gas—corporation tax and the supplementary charge

UK resident companies, and non-UK resident companies with a UK permanent establishment or that carry on exploration or exploitation activities in the UK or the UK sector of the continental shelf, are potentially subject to three levels of tax on their profits from oil and gas exploration and production:

  1. corporation tax

  2. the supplementary charge (SC), and

  3. petroleum revenue tax (PRT) (albeit at 0% from 1 January 2016)

Corporation tax and SC are applied to the ‘upstream’ (exploration, development and production) profits of the company as a whole. Corporation tax is applied to oil and gas profits at a higher rate than applies to other activities. The profit base for SC is the corporation tax profit base adjusted for financing items and investment allowances.

PRT is applied on an oil field by oil field basis, and is deductible against corporation tax and SC profits. The rate of PRT was reduced to zero for periods ending after 31 December 2015, although the tax has not been abolished so that companies that have previously paid PRT can still obtain PRT relief for decommissioning expenditure. For more information, see Practice Note: Petroleum revenue tax.

Companies in the oil and gas sector should also consider whether they are affected by the diverted profits tax (DPT). If so, DPT may apply at 55%, rather than the

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