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HMRC internal manual

Oil Taxation Manual

PRT: royalty - licence debit and credit

PRT Royalty was abolished with effect from 1 January 2003.

OTA75\S2(3) includes in the list of positive and negative amounts that form the basis of the computation of assessable profit, the licence credit (positive) or the licence debit (negative). This provision gives relief for payments to the Secretary of State under licences for exploration and production or amends relief previously given as the licence liability is adjusted over time.

This licence credit or debit is itself computed each period by reference to a set of positive and negative amounts as set out in OTA75\S2(6) and OTA75\S2(7): the resulting net debit or credit being the figure taken into account in the assessment.

The components of the computation are as follows:

  Debit (negative amounts)   
  Royalty payable in the period S2(7)(a)
  Royalty paid in the period S2(7)(b)
  Periodic payments made in the period S2(7)(c)
  Allowable sums paid in the period FA81\S118(1)(a)
  Credit (positive amounts)   
  Royalty payable in the previous period S2(6)(b)(i)
  Royalty repaid in the period S2(6)(b)(ii)
  Chargeable sums received in the period FA81\S118(1)(b)

The elements in the computation include the majority of licence related payments and receipts. However there are three exceptions:

  • The initial payment required under each licence (along with all the other costs of obtaining a licence) is allowable as part of an expenditure claim under the provisions of OTA75\S3(1)(b) (which specifically disallows any amount in respect of royalty or other periodic payments). Essentially the initial payment is treated as a capital payment as opposed to the revenue type payments included in the licence debit and credit computation.
  • Discretionary repayments made by the Secretary of State under the Petroleum and Submarine Pipe-lines Act 1975 (PSPA\S41(3)) are specifically excluded from the PRT computation. This provision was designed to enable special repayments to be made to facilitate or maintain the development of UK oil resources, and particularly of marginal fields.
  • Royalties paid and payable on excluded oil (see OT05125) are excluded from the computation under the provisions of OTA75\S10(2).

The nature and purpose of the various individual items included in the licence debit and credit computation are further explained in the paragraphs below.