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HMRC internal manual

Oil Taxation Manual

PRT: allowable field expenditure - specifically excluded expenditure: interest


OTA75\S3(4)(a) disallows any costs relating to finance including interest or any other pecuniary obligation incurred in obtaining a loan or other form of credit. The prohibition extends to

  • interest on late paid invoices
  • professional fees relating to the raising of development finance
  • commitment fees payable in respect of the undrawn balances of loan facilities
  • guarantee fees.

If an asset is acquired under extended credit terms or some other arrangement which in effect includes an interest element, then that element should be identified and disallowed. (See also OT12575 regarding FA81\S115 and contractor financing).

In considering overheads recharged by parent companies to ring fence UK companies, it is important to bear in mind that finance costs might be included. These should be identified and disallowed.

Leasing costs are not in principle disallowable provided the expenditure comes within one of the prescribed headings in OTA75\S3(1) (but see OT09600 where lease payments result from a sale and leaseback). In the case of a hire purchase contract to which FA81\S115 does not apply, the capital and interest elements are not distinguished for PRT, as they are for corporation tax, and the rental payments will be allowed in full for PRT, provided the purpose of the payment falls within OTA75\S3(1).