Petroleum Revenue Tax (PRT)

What is Petroleum Revenue Tax (PRT)?

Petroleum Revenue Tax (PRT) is a tax applied to the profits generated from extracting oil and gas within the United Kingdom’s continental shelf. It was introduced by the Finance Act 1975 with the aim of ensuring that a fair share of the profits from the country’s natural resources goes to the public coffer. PRT was particularly significant during periods when oil prices were high, ensuring increased government revenues during those times. Although PRT was abolished for new fields in 1993, it still applies to profits from fields that were developed before this date.

Examples of Petroleum Revenue Tax (PRT):

Brownfield Sites: For older fields developed before 16 March 1993, companies must still account for PRT on the profits they generate. For example, Field A, developed in 1985, continues to incur PRT on its profits.
PRT Reliefs: Companies may claim various reliefs such as expenditure relief on capital costs (e.g., drilling new wells), which reduce the overall PRT liability. If Company B drills a new well in a pre-1993 field, they can deduct these costs from their PRT calculation.

Frequently Asked Questions (FAQ) about Petroleum Revenue Tax (PRT):

1. Is PRT still applicable on all oil and gas fields in the UK?

No, PRT only applies to fields that were developed before 16 March 1993. Newer fields are exempt from PRT due to legislative changes.

2. What is the current PRT rate?

The current rate for PRT is 0%, effectively meaning that no PRT is currently being collected, although its framework remains in place for potential future changes.

3. Can companies reclaim PRT costs?

Yes, companies can reclaim PRT costs through various reliefs such as expenditure on capital and certain operational costs related to the development of pre-1993 fields.

4. How does PRT affect the profitability of oil companies?

PRT historically affected profitability by reducing net profit due to tax liabilities on oil and gas extraction profits. However, since it stands at 0%, it presently does not affect profits directly.

5. Why was PRT initially introduced?

PRT was introduced to ensure that the UK government could gain a fair share of profits from the extraction of its natural resources, particularly during periods of high oil prices.

1. Royalty[Importance of energy royalties]

Royalties are payments made to the government by companies for extracting natural resources like oil and gas. They ensure public share from private resource utilization.

2. Tax Allowance

Tax allowances are permissible deductions from taxable income, yielding a reduced tax liability. In the context of PRT, these might include expenditure reliefs.

3. Capital Expenditure[Link to accounting capital expenditures definition]

Capital expenditure refers to the funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment. These expenditures are often deductible under PRT.

4. Supplementary Charge

This is an additional charge on profits from oil and gas extraction, introduced in the UK tax system. It differs from PRT but exists within the same fiscal structure.

Online References

Suggested Books for Further Studies

“Petroleum Revenue Management: An Introductory Guide” by César E. Moura
- Offers insights into managing revenues from petroleum, including taxation aspects such as PRT.
“Oil and Gas Law in the UK” by Simon Wenban-Smith
- A comprehensive book dealing with the legal frame of the UK’s oil and gas sector, including tax considerations such as PRT.
“International Petroleum Fiscal Systems and Production Sharing Contracts” by Daniel Johnston
- Detailed exploration of various international fiscal systems, including discussions on natural resource taxation like PRT.

Accounting Basics: “Petroleum Revenue Tax” Fundamentals Quiz

### What prompted the introduction of Petroleum Revenue Tax (PRT) in the UK? - [ ] To incentivize more oil extraction - [x] To ensure fair taxation on profits from oil and gas extraction - [ ] To replace income tax for oil companies - [ ] To streamline environmental regulations > **Explanation:** PRT was introduced to ensure that the UK government received a fair share of the profits made from the extraction of its natural resources, especially during high oil price periods. ### Does PRT apply to all oil and gas fields in the UK? - [ ] Yes, it applies to all fields irrespective of the discovery date. - [x] No, it only applies to fields developed before 16 March 1993. - [ ] PRT has been completely abolished. - [ ] Only fields in the North Sea are exempt. > **Explanation:** PRT is applicable only to fields that were developed before 16 March 1993. Newer fields do not come under the purview of PRT. ### What is the current rate of Petroleum Revenue Tax? - [x] 0% - [ ] 10% - [ ] 20% - [ ] 35% > **Explanation:** The current rate of PRT is 0%; although its framework remains in place, it's not being collected at this time. ### Can companies claim expenditure relief under PRT? - [x] Yes, companies can claim relief for certain capital and operational costs. - [ ] No, there are no reliefs available under PRT. - [ ] Only for new fields developed after 1993. - [ ] Reliefs are only province-specific. > **Explanation:** Companies can claim various expenditure reliefs (e.g., on capital costs like new drilling) for fields that are subject to PRT. ### What was one major incentive for abolishing PRT for new fields post-1993? - [ ] To increase tax revenue - [ ] To integrate PRT with income taxes - [x] To encourage new oil and gas field development - [ ] To comply with international law > **Explanation:** Abolishing PRT for new fields post-1993 was intended to encourage the development of new oil and gas fields by lowering the tax burden. ### Which agency provides guidelines for Petroleum Revenue Tax? - [ ] The International Monetary Fund (IMF) - [ ] The European Union (EU) - [x] HM Revenue & Customs (HMRC) - [ ] The World Bank > **Explanation:** HM Revenue & Customs (HMRC) is the agency that provides guidelines and regulations for Petroleum Revenue Tax in the UK. ### What determines the eligibility of a field for PRT? - [ ] Company size - [ ] Annual profit - [x] The development date of the field - [ ] The number of employees > **Explanation:** The key criterion for PRT eligibility is the development date of the field, specifically whether it was developed before 16 March 1993. ### How are profits calculated for Petroleum Revenue Tax? - [ ] Profits include global operations of the company. - [ ] Profits exclude capital expenditures. - [x] Profits are specific to each field’s production. - [ ] Profits include future projections. > **Explanation:** Profits for PRT are calculated based on the specific production of each relevant field, not on global operations. ### Why is PRT currently set at 0%? - [x] To provide tax relief to oil companies - [ ] To align with other European countries - [ ] Due to declining oil prices - [ ] To fund renewable energy projects > **Explanation:** Currently, PRT is set at 0% to provide tax relief to oil companies, although its legislative framework remains in effect. ### Can PRT liabilities be offset with previous losses? - [x] Yes, losses carried forward can offset future PRT liabilities. - [ ] No, losses cannot be carried forward. - [ ] Only under specific conditions. - [ ] Only for overseas operations. > **Explanation:** Yes, PRT liabilities can be offset with previous losses, as carried-forward losses can reduce future PRT liabilities for fields developed before 1993.

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