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HMRC internal manual

Oil Taxation Manual

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PRT: allowable field expenditure - outline

PRT is charged on a participator’s profits in an oil field and is as such a field-based tax. It follows that, in general, expenditure is only allowable in a field to the extent that it relates to that field, but see

  • OT13750 on certain non-field specific expenditure,
  • OT16250 on unrelievable field losses, and
  • OT13000 on cross field allowances,

which can be claimed (subject to particular conditions) in any field in which the participator has an interest.

See also OT09300 on statutory redundancy, which likewise can be claimed in any field.

Categories of allowable field expenditure

OTA75\S3(1) details the categories of field expenditure which are allowable. The test for admissibility is one of purpose at the time the expenditure is incurred (generally, but not exclusively, purpose relating to the field of claim). The relevant purposes are

Long-term assets and OTA75\S3(1)

In general, the Oil Taxation Acts make no distinction between capital and revenue expenditure. 100% upfront relief is available for almost all allowable expenditure as it is incurred. However, a distinction is drawn between expenditure on ‘long-term assets’ (broadly assets used in connection with the field and whose useful life extends beyond the end of the claim period in which they are first used, (see OT11000) and other expenditure.

OTA75\S3 relates only to the allowance of expenditure which is not expenditure incurred on a long-term asset. The test for admissibility of long-term asset expenditure is one of use, or expected use, for one or more of the purposes listed at OTA75\S3(1) in connection with a field. So the main ‘long-term asset’ rules in OTA83 are ‘bolted on’ to the 1975 provisions with this link to OTA75\S3(1) purpose. That purpose can relate to capital or operating expenditure alike.

Apportionment of expenditure

Where expenditure is incurred partly for one or more of the qualifying purposes and partly not, OTA75\S3(6) provides for its apportionment on a just and reasonable basis, see OT09375.

Date expenditure treated as incurred

The date expenditure is incurred is governed by rules in FA93\S191, see OT14510 et seq.

Non-allowable expenditure

While the general principle is that expenditure is only allowable if the Statute explicitly says that it is allowable, some types of expenditure, including interest, are also specifically prohibited. The disallowable categories are listed in OTA75\S3(4), see OT09450.

In addition, OTA75\S3(3) prohibits the allowance of any expenditure under any Schedule if it has already been allowed under one of OTA75\SCHS5-7 for any field, see OT09425.