Q&As

Where a company sells an interest in a petroleum revenue tax (PRT) paying oil field and retains some decommissioning liability, is it able to claim decommissioning relief for PRT? How does the relief interact with relief for decommissioning expenditure in respect of ring fence taxes?

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Published on LexisPSL on 26/09/2017

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • Where a company sells an interest in a petroleum revenue tax (PRT) paying oil field and retains some decommissioning liability, is it able to claim decommissioning relief for PRT? How does the relief interact with relief for decommissioning expenditure in respect of ring fence taxes?

This Q&A is based on the assumption that the company has sold the oil field assets and no longer retains a licence interest.

UK resident companies, and companies with a UK permanent establishment, are potentially subject to three levels of tax on their profits from oil and gas:

  1. ring fence corporation tax (RFCT)

  2. the supplementary charge (SC), and

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

Profits chargeable to RFCT are broadly computed on the same basis as the normal corporation tax rules (with some exceptions). The SC is calculated on the same basis as corporation tax, but without deduction for finance costs. PRT is a cash flow tax charged on the basis of individual oil and gas fields and is deductible as an expense in computing profits chargeable to RFCT and SC. For information on the RFCT and SC, see Practice Note: Oil and gas—corporation tax and the supplementary charge and for information on PRT, see Practice Note: Petroleum revenue tax.

Tax losses arising on decommissioning can be carried back and offset against the profits chargeable to RFCT, SC and PRT. Tax paid on profits in previous years may also be reclaimed. Different rules are used to calculate how much relief can be

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