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HMRC internal manual

Oil Taxation Manual

PRT: oil allowance - background

Oil allowance is one of a package of measures designed to prevent PRT bearing unduly on smaller, more marginally economic fields.

The allowance ensures that for at least the first ten years of a field’s life (and most probably for rather longer) a substantial slice of production is free from PRT. The available amounts (see OT17100) are converted each chargeable period into a ‘cash equivalent’ (see OT17150) which then reduces a participator’s liability to PRT. Allowance is given to participators after all other expenditure and reliefs except for safeguard (which itself is another significant means of helping the development of more marginal fields, see OT17500).

Oil allowance is a field relief. Where a participator has insufficient profits in a particular chargeable field to absorb the allowance, it is not carried back or forward, but rather it remains available for later use in the field subject to a prescribed maximum. Because of this, the allowance given to participators can become out of step with their equity entitlements and rules on reallocation are covered at OT17300.

As PRT has been permanently zero-rated, the oil allowance no longer has any practical effect. As a result, from 2H 2016 there are no longer any reporting requirements associated with the oil allowance. The sections of the PRT1 and PRT2 returns that relate to the oil allowance no longer need to be completed.