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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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PRT: non-field expenditure: exploration and appraisal expenditure: onshore expenditure


OTA75\S5A(2) originally provided for relief to include the cost of onshore exploration and appraisal (E&A). However it became clear that most onshore prospects were too small to pay PRT and that this onshore relief was unduly generous. FA85\S90(2) therefore provides, with one exception (on which see below), that relief should only be given for expenditure incurred on or after 1 April 1986 if the relevant qualifying purpose (see OT13975) relates to offshore rather than onshore E&A. The legislation denotes offshore by referring to ‘the territorial sea of the United Kingdom’.

Licence payments

The exception mentioned above relates to payments, other than royalties or other periodic payments, made to the Secretary of State under or for the purpose of obtaining a relevant licence, OTA75\S5A(2)(d). Costs relating to onshore licences allowable under this provision remained allowable after FA85\S90(2).

Onshore offshore boundary

Difficulties arose in deciding whether E&A in certain watery areas, e.g. estuaries, was onshore or offshore. As a result FA86\S108 which redefined the onshore\offshore boundary was introduced.

Land lying between the landward boundary of the territorial sea and the shoreline of the United Kingdom is treated, under FA86\S108(1), as part of the bed of the territorial sea. As such any references to the United Kingdom as a geographical area do not include that land.

The ‘landward boundary’ and the ‘shoreline of the United Kingdom’ are both defined in FA86\S108(3).