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HMRC internal manual

Oil Taxation Manual

PRT: meaning of expenditure incurred and timing issues - background

There are specific rules in PRT which govern the timing of when expenditure can be taken as incurred. The relevant provisions are in FA93\S191- the rules are covered in detail in OT14520. The wording of section 191(1) is very similar to CAA2001\S5(was CAA1990\S159(3)).

The legislation defines “incurred” for the purpose of the Oil Taxation Acts to clarify when relief is due and to prevent the acceleration of expenditure relief, an issue of particular significance in 1993 in the light of the reduction in the PRT rate from 75% to 50% in respect of chargeable periods ending after 30 June 1993, FA93\S186(1). Timing can still be materially significant, and not simply because of cash flow. For example, expenditure allowed in an earlier chargeable period may have the effect of extending a company’s net profit period (NPP) (see OT12650 on NPP generally), with consequential impact on the availability of supplement and on the number of safeguard periods (see OT17500).

Correction of over-claims where relief accelerated

Companies may often seek to correct an over-accrual in a particular claim period by making a ‘negative claim’ in the next, or another later period. But if by so doing the company is able to gain a material timing advantage, a notice of variation should be made. See OT04720 on ‘negative claims’ and OT04750 on notices of variation.

Further timing provision

A further ‘timing’ rule was introduced at the same time in FA93\S192. This provision governs the chargeable period in which expenditure may be brought into account, see OT14560. Again the purpose is to avoid the acceleration of relief.