Energy & Resources
At L & S Accounting Firm, our dedicated specialists provide comprehensive, integrated solutions covering Metals & Mining, Oil & Gas, Power & Utilities and Shipping. These solutions address the broad range of challenges facing companies as they adapt to a changing regulatory environment; to significant political, economic and market pressures; and to innovative technological development. Our in-depth expertise in these dynamic sectors serve as an integral resource for a significant proportion of the world’s largest energy and resources companies. The strength of our practice lies in our ability to offer clients exceptionally detailed knowledge of the industry and our global reach.
THE UK UPSTREAM OIL AND GAS TAX REGIME
The tax regime which applies to exploration for, and production of, oil and gas in the UK and on
the UK Continental Shelf (UKCS) currently1comprises three elements:
Ring Fence Corporation Tax
This is calculated in the same way as the standard corporation tax applicable to all
companies but with the addition of a "ring fence" and the availability of 100% first year
allowances for virtually all capital expenditure. The ring fence prevents taxable profits from oil
and gas extraction in the UK and UKCS being reduced by losses from other activities or by
excessive interest payments. The current main rate of tax on ring fence profits, which is set
separately from the rate of mainstream corporation tax, is 30%.
This is an additional charge, currently at a rate of 32%, on a company's ring fence profits (but
with no deduction for finance costs). A "field allowance" removes from the charge to
supplementary charge a slice of production income from qualifying small or technically
challenging new fields.
Petroleum Revenue Tax (PRT)
This is a field-based tax charged on profits arising from oil and gas production from individual
oil fields which were given development consent before 16 March 1993. The current rate of
PRT is 50%; PRT is deductible as an expense in computing profits chargeable to ring fence
corporation tax and supplementary charge.
The marginal tax rate is 81% on income from fields paying PRT, 30% on production income
from qualifying new fields if that income is wholly covered by field allowance and 62% otherwise.
A Ring Fence Expenditure Supplement (RFES) assists companies that do not yet have
sufficient taxable income for ring fence corporation tax purposes against which fully to set their
exploration, appraisal and development costs. The RFES increases the value of losses carried
forward from one accounting period to the next by a compound 10% a year – 6% a year for
accounting periods beginning before 1 January 2012 – for a maximum of 6 years, not necessarily
Oil and gas decommissioning tax relief – Legislation was introduced in Finance Act 2012 to
restrict tax relief for decommissioning expenses for Supplementary Charge purposes to 20%.
There will be no restrictions to decommissioning relief beyond this level for the lifetime of this
Parliament. The Government is currently consulting on proposals to give further, longer-term
certainty on decommissioning.
More detailed information on the UKCS tax regime is available from the Oil and Gas sector of
the Large Business Service at HM Revenue & Customs.