Petroleum revenue tax
Encyclopedia
Petroleum revenue tax 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rate of PRT was reduced from 75% to 50%, but various reliefs from PRT for expenditure on exploration and appraisal were withdrawn.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, and was further increased in the 2011 budget to 32%, with effect from 23 March 2011. This means that the marginal tax rate on PRT paying fields is now 81% (fields not paying PRT pay a rate of 62%).
PRT is administered by the Energy Group of the Large Business Service of HM Revenue and Customs (formerly the Oil Taxation Office of Inland Revenue
). This group also administers the "ring fence" corporation tax and supplementary charge paid by companies on profits from oil and gas production, and previously administered the royalty charged on the gross value of oil and gas won.
Direct tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...
collected in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
. It was introduced under the Oil Taxation Act 1975, soon after Harold Wilson
Harold Wilson
James Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, FSS, PC was a British Labour Member of Parliament, Leader of the Labour Party. He was twice Prime Minister of the United Kingdom during the 1960s and 1970s, winning four general elections, including a minority government after the...
's Labour
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
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
Continental shelf
The continental shelf is the extended perimeter of each continent and associated coastal plain. Much of the shelf was exposed during glacial periods, but is now submerged under relatively shallow seas and gulfs, and was similarly submerged during other interglacial periods. The continental margin,...
, 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
United Kingdom corporation tax
Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU. Prior to the tax's enactment on 1 April 1965, companies and individuals paid the same income 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
Pre-Budget Report
In the United Kingdom, the Autumn Statement, at times the Summer Statement and the Pre-Budget Report , is one of the two statements HM Treasury makes each year to Parliament upon publication of economic forecasts, the other being the annual Budget...
of December 2005, with effect from 1 January 2006, and was further increased in the 2011 budget to 32%, with effect from 23 March 2011. This means that the marginal tax rate on PRT paying fields is now 81% (fields not paying PRT pay a rate of 62%).
PRT is administered by the Energy Group of the Large Business Service of HM Revenue and Customs (formerly the Oil Taxation Office of Inland Revenue
Inland Revenue
The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty...
). This group also administers the "ring fence" corporation tax and supplementary charge paid by companies on profits from oil and gas production, and previously administered the royalty charged on the gross value of oil and gas won.