Oil & Gas UK Economic Report 2014

Figure 43: Tax Rates for UK Continental Shelf and Other UK Companies

100% Pre-Tax Profit

Pre-Tax Profit

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

30% RFCT

0-32% SC

Non Oil and Gas Company

79% Post-Tax Profit

21% CT

0

20

40

60

80

100

% Share

Source: Oil & Gas UK

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 the economy, the Oil Allowance within the PRT regime and FAs for SC purposes only ever reduce the tax burden from very high rates to ones that are closer to, but still higher, than that for other companies. Therefore, these allowances cannot be said to represent a subsidy for the industry, as is sometimes claimed; all they do is partially alleviate the tax burden. Furthermore, some companies are subject to both the ring fence regime in respect of their upstream oil and gas production and the normal CT regime for their downstream refining and marketing. Companies cannot offset their profits or losses between the two

regimes to reduce their overall tax liability, because upstream profits are always taxed separately under the ring fence regime. In recent years, various FAs have been introduced by the government to help keep the UKCS internationally competitive for investment funding and ensure that difficult oil and gas prospects are brought into production where this would not otherwise happen. This is in pursuit of the established policy of recovering as much oil and gas from the UKCS as can be economically achieved, a policy which theWood Review has recommended needs to be re-invigorated. These FAs are tabulated below. They provide relief against SC, not RFCT, and only up to a fixed value, above which SC becomes payable in addition to RFCT.

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ECONOMIC REPORT 2014