Economic Report 2013

Marginal tax rates therefore vary across the UKCS as follows: • Fields subject to PRT, SC and RFCT pay 81 per cent of their profits in tax, comprising PRT at 50 per cent, plus 30 per cent RFCT and 32 per cent SC of the remaining 50 per cent • Fields not paying PRT (either because they are not liable to this tax, or by virtue of a relief called Oil Allowance 7 ) are subject to tax at a marginal rate of 62 per cent (30 per cent RFCT plus 32 per cent SC) • Fields which benefit from a FA – a relief against SC – pay tax at a rate between 30 per cent (that is only paying RFCT at 30 per cent) and 62 per cent (on profits once the field allowance has been used).

As the oil and gas fiscal regime taxes profits at a minimum rate of 30 per cent which is considerably higher than for companies in all other parts of industry and commerce, the Oil Allowance within the PRT regime and field allowances for SC purposes only ever reduce the tax burden from very high rates to one that is closer to, but still higher than that for other companies. Therefore, these allowances cannot be said to represent a subsidy for the industry as they only partially alleviate the tax burden. Furthermore, some companies are also subject to both the RFCT regime in respect of their upstream oil and gas production activities and the normal CT regime for their downstream refining and marketing activities. Companies cannot offset their profits or losses between the two regimes to reduce their overall tax liability, as upstream profits are always taxed separately under the ring fence regime.

Figure 32: Tax Rates for the UKCS and Other UK Companies

of remaining 50%

PRT Paying Field

38% Post-Tax Profit

50% PRT

30% RFCT 32% SC

Non-PRT, No Allowance

38% Post-Tax Profit

30% RFCT

32% SC

Qualifies for Allowance

38-70% Post-Tax Profit

0-32% SC

30% RFCT

Non Oil and Gas Company

23% CT

77% Post-Tax Profit

0

20

40

60

80

100

Share %

Source: Oil & Gas UK

7 Oil Allowance is a relief to ensure that PRT is only levied on the largest, most productive fields. The allowance gives each field liable to PRT amounts of oil and gas which can be produced free of PRT per tax period and for the life of the field. Any production above these amounts is subject to PRT at the prevailing rate.

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ECONOMIC REPORT 2013