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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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PRT: royalty - royalty paying fields

PRT Royalty was abolished with effect from 1 January 2003.

All licence rounds have made provision for the payment of royalties on the value of the oil produced. Since 1982 however successive legislation (the Petroleum Royalties (Relief) Act 1983 and the Petroleum Royalty Relief and Continental Shelf Act 1989) has exempted from inclusion in the royalty calculation production from all fields that received development consent after 31 March 1982. Effectively therefore these fields pay no royalty.

As a result PRT fields now fall into the following categories:

  • royalty payers licensed in rounds 1 to 4. Here the royalty is charged at 12.5% on effectively the well head value of production,
  • royalty payers licensed in round 5. Here the royalty is charged at 12.5% of the landed value of the production,
  • non-royalty payers including, as stated above, any field for which development consent was granted after 31 March 1982.

Onshore fields licensed before 1983 follow a similar pattern but with varying rates from 5% to 12.5%. After that date they also were charged at 12.5%.

It should also be noted that royalties are payable by reference to licence areas and not to PRT fields. Thus where a licence area covers more than one field there is a possible conflict with the requirement in OTA75\S2 to compute the assessable profit by reference to the licence payments relating to each individual field.

This situation is not covered by statue and where it arises the LB Oil & Gas, after consultation with industry, has adopted an approach of applying a just and reasonable apportionment between each of the fields covered by the licence. In practice this has meant trying to ensure that over a period:

  • each field gets a deduction appropriate to the production arising from the field having regard to the actual costs of production and values of products lifted and
  • the total relief in each chargeable period is limited to the net cash payments.

This approach was set out in letters to UKOITC (The United Kingdom Oil Industry Taxation Committee) dated 26 October and 5 November 1981 which was accepted in a reply dated 19 January 1982 as a valid (although non binding) guide to the settlement of these multi-field licence problems. In practice problems have rarely arisen.