ECONOMIC REPORT 2013
43
Introduction
The production of oil and gas from the UKCS
is the most highly taxed business activity in
the country, with three separate corporate
taxes which generate substantial revenues for
the Exchequer.
Over the past decade or so, the UKCS has
been subject to considerable fiscal instability,
with the most recent tax change, in March
2011, increasing overall tax rates to between
62 per cent and 81 per cent. To ensure that
the remaining development opportunities on
the UKCS are internationally competitive, the
government has had to build on existing field
allowances (FAs), first introduced in 2009,
providing targeted relief from the scope of the
Supplementary Charge (SC).
These allowances have contributed to a
greater diversity of marginal tax rates which
reflect the varying commercial opportunities
available on the UKCS. Since the introduction
of the Brown Field Allowance (BFA) in
September 2012 and with the security to be
provided by Decommissioning Relief Deeds
(DRDs), the government now has the ability to
influence all phases of the development cycle
through the fiscal regime. This should help
ensure that the full economic potential of the
UKCS is realised over the coming years.
The Fiscal Regime for Oil and Gas
The production of oil and gas from the UKCS is
subject to a ‘ring fence’ tax regime
6
comprising:
•
Ring Fence Corporation Tax (RFCT)
–
this is computed in a similar way to
normal Corporation Tax (CT), but with
different rules for the treatment of losses,
100 per cent first year capital allowances
and a higher rate of 30 per cent on all
profits. The oil and gas industry has not
benefitted from reductions in the rate
of CT seen elsewhere in the economy in
recent years.
•
Supplementary Charge (SC)
– this is an
additional corporation tax, levied on all
profits at the rate of 32 per cent (was 20
per cent before March 2011). Profits are
computed in the same way as for RFCT,
but finance costs are not deductible for
SC purposes.
•
Petroleum Revenue Tax (PRT)
– this is a
field-based tax on profits in the regime and
only applies to fields given development
consent by DECC before March 1993.
PRT is levied at a rate of 50 per cent
and is deductible for the purposes of
computing profits charged to RFCT and SC.
Immediate relief is given for all capital and
revenue expenses.
6. Fiscal Policy
6
The ‘ring fence’ ensures that the profits from oil and gas production are taxed separately from any other activities within a company and any
losses made by those other activities cannot be used by the company to offset the profits from the production of oil and gas.
