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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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PRT: allowable field expenditure - material stocks

Companies, especially the larger ones with many interests, will often maintain a central stock of materials and spares such as well casing and tubing, fuel for production purposes, equipment spares and the like. The purpose of the central holding is to reduce to a minimum the level of stocks required. Commonly the stocks will only be allocated to a particular field or exploration venture when drawn for use.

It is arguable that PRT relief should only be claimed at the time the stock is allocated to a particular field rather than when the expenditure is initially incurred, but were the stock held for more than six years before field use, that would preclude relief altogether.

It has therefore been agreed that relief may be given for such stocks at the time expenditure is incurred on the grounds that each purchase is for the purpose of winning oil from all the operator’s fields provided that an appropriate allocation method can be agreed under OTA75\S3(6), see OT09375. Any allocation method, if it is to be acceptable, would be expected to differentiate between central stocks that are clearly of potential use in some fields only, and those central stocks that might potentially be used over the full range of a company’s interests.

See OT13840 where stocks are used for OTA75\SCH7 purposes and the relevant expenditure constitutes expenditure on long-term assets.