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HMRC internal manual

Oil Taxation Manual

PRT: allowable losses - unrelievable field losses: permanent cessation of production but further PRT assessable income

Before OTA83, tariff and disposal receipts were not assessable, and cessation of production in the context of PRT would have meant the end of field life. Also, at that time, decommissioning costs were not allowable (other than under the pre FA91 version of OTA75\S3(1)(i) when incurred on closing down the field for safety purposes) so losses would not continue to arise after production ceased.

However, post OTA83, if a field asset (e.g. platform pumping equipment, pipeline etc.) is, after it has ceased production, used by another field, that use may give rise to assessable tariffs. Equally, its disposal may give rise to an assessable disposal receipt. However, OTA75\S6 was not amended following the introduction of the tariff and disposal receipts provisions, so it is possible for an unrelievable field loss to be claimed even though the exact quantum of the loss has not been established.

If a field loss exists at the time production ceases, HMRC will not necessarily accept that a participator can make a claim to have that loss, in so far as it cannot be absorbed by assessable profits of the field in earlier periods (OTA75\S7(3)), set against profits from another field rather than have it carried forward under OTA75\S7(1) against future income. Any such claim made should be referred to the SCS Responsible Officer for PRT.

UFL Claim Form PRT47 therefore invites the claimant to calculate an appropriate reservation on account of unassessed profits. The form reminds the claimant that ‘Section 6 OTA 1975 defines an allowable unrelievable field loss as so much of the allowable loss of the other field as cannot be relieved against profits’.

Form PRT47 takes this approach because claims made in the net amount, after taking account of the possibility that some of the loss will be used under OTA75\S7(1), would deprive the participator of a claim to the extent that profits are over-estimated. A supplementary claim may only be made, within the time limit, if there is an error or mistake (OTA75\Sch8\Para4(2)), see OT16300.

However, an under-estimate of future profits may expose those receipts to a tax charge. That would be all the more likely as there is no oil allowance available once production has ceased.