Guidance

Petroleum Revenue Tax: cutting administration costs for the oil industry - technical note

Published 23 November 2016

Introduction

1.The purpose of this technical note is to clarify certain aspects of the measure introduced at Autumn Statement 2016 to reduce administration costs for participators in the Petroleum Revenue Tax (PRT) regime.

2.There are 2 parts to the measure. The first is the simplification of the process for opting fields out of the PRT regime and the second concerns the removal of reporting requirements from PRT forms.

3.Both parts of the measure come into force from 23 November 2016.

Changes to the opt out process

4.The changes to the opt-out come into force immediately. This is to enable the responsible person to opt fields out for the next chargeable period (beginning 1 January 2017).

5.The relevant legislation will be published in draft Finance Bill 2017 and will apply from 23 November 2016. The legislation will replace the previous legislation governing opt-outs, at Schedule 20B of Finance Act 1993.

6.If the simplified election is not approved by Parliament, then companies will need to submit the outstanding returns, but will not be subject to late penalty charges.

7.The legislation will remove the conditions for opting out. Previously, the responsible person had to show that the field would never produce assessable profits for any participator in the field at any point in the future, or that any assessable profit would be equal to or less than each participator’s share of the field’s oil allowance. The removal of these conditions means that the responsible person can opt out a field simply by making an election to do so.

The election must be made in writing and notified to HM Revenue and Customs (HMRC) - either to the:

PRT team
Bush House
Strand
London
WC2B 4RD

by emailing Ian Barker ian.s.barker@hmrc.gsi.gov.uk in HMRC’s PRT team, or by any other reasonable method.

8.The legislation retains the requirement for the responsible person to make the election only after ensuring that each person who is a participator at the time agrees to an election being made.

9.After the notification, HMRC will contact the responsible person and participators to discuss alternative arrangements for participators to continue to provide data on arm’s length sales of Category 2 oils (currently submitted through a PRT1A form) in order to enable HMRC to make accurate valuations for non-arm’s length sales of Category 2 oils.

10.Provision of Category 2 data after opting out will be on a voluntary basis and will have no impact on the validity of an election to opt out.

11.Once the PRT team has received the notification of an election to opt out, it will provide an acknowledgement to the responsible person no later than 56 days after receipt. The date of acknowledgement will not affect the effective date of opt-out.

12.The election will have effect from the start of the first chargeable period after the election is made. An election is deemed to have been made on the date when notification of the election was sent to HMRC. If necessary, the date of notification can be verified by proof of postage or email delivery receipt.

13.Once a field has opted out of the PRT regime, no allowable loss accruing from the field can be an unrelievable field losses. This is unchanged from the pre-existing legislation.

Removal of reporting requirements

14.The measure will remove the oil allowance reporting requirements from PRT 1 and 2 forms and the tax liability instalment reporting requirement from the PRT 6 form. The removal of the oil allowance reporting requirements means that participators do not have to make the conversion into metric tonnes.

15.HMRC’s view is that neither of these requirements are still relevant and that the data from them is no longer required. The tax liability instalment is no longer required because PRT has been permanently zero-rated. There is therefore no tax liability for participators and no instalment schedule is required. Similarly, the oil allowance was introduced to prevent PRT unduly impacting smaller, more marginal fields by providing a variable allowance for a slice of production to have no PRT liability. As PRT is now zero-rated, the oil allowance no longer has an impact and no longer needs to be calculated.

16.Although the change will come into effect immediately from Autumn Statement 2016 the forms will not be updated until a later date in order to fit into existing HMRC project timelines.

17.As a result, participators don’t need to complete these sections for the current chargeable period (ending 31 December 2016) or any subsequent reporting periods. The relevant sections can be left blank.

18.If you are unsure about what to report, please contact Ian Barker ian.s.barker@hmrc.gsi.gov.uk in the PRT team.

Future plans

19.HMRC will update online guidance on PRT in due course.

20.If you have any questions on this note, please contact Nicola Garrod on email: nicola.garrod@hmrc.gsi.gov.uk.