Commentary

D7.902 Treatment of oil extraction activities

Corporate tax
Corporate tax | Commentary

D7.902 Treatment of oil extraction activities

Corporate tax | Commentary

Tax charge on ring fenced trade

D7.902 Treatment of oil extraction activities

General rules

The normal UK tax rules apply to the oil industry with certain modifications. Where a person carries any of the following trades within the UK, its territorial waters or in a designated area of the UK continental shelf, those activities are treated for all purposes of income and corporation tax, as a separate trade (the 'ring fence' trade), distinct from all other activities carried on by that person as part of the trade1:

  1.  

    (a)     any oil extraction activities2

  2.  

    (b)     the activities of acquisition, enjoyment or exploitation of oil rights3; or

  3.  

    (c)     activities of both those descriptions

Income such as tariff receipts received or receivable after 30 June 1982 and tax-exempt tariffing receipts received or receivable after 31 December 2003 are specifically brought within the ring fence4. For accounting periods beginning on or after 1 January 2018, HMRC will regard all activities by UK petroleum licence holders giving rise to tariff income in relation to UK oil and gas assets as oil extraction activities, removing any distinction between the treatment of tariff income arising from old (PRT) and new (non-PRT) oil fields for ring-fence corporation tax purposes5.

The ring fence does not however extend to income from a petroliferous trade carried on outside the UK, its territorial waters or the UK

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