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HMRC internal manual

Oil Taxation Manual

PRT appendices - elections for oil fields to become non-taxable

Introduction
How the legislation works
Acknowledgement of election
Voluntary submission of Category 2 oils data
Tariff Receipts

Introduction

FA 2008 introduced legislation that allowed participators in a PRT field to elect to make that field non-taxable. The legislation included the condition that HMRC had to approve an election and HMRC would only do so if evidence showed that there would be no assessable profits accruing to any participator in that field in future, or if there were, they would be fully covered by oil allowance. These rules required the provision of a substantial quantity of data to provide assurance to HMRC that there was no tax risk to the Exchequer before a field could be opted out of the PRT regime.

As PRT has been permanently zero-rated from 1 January 2016, there is no longer a requirement to have that assurance. As a result, HMRC introduced legislation at Autumn Statement 2016 for inclusion in FA 2017 to remove these conditions so that a field can be opted out through a simple election. This reduced administration for participators wishing to opt out fields from the PRT regime. An election is irrevocable.

This has effect from 23 November 2016, meaning fields can be opted out of PRT for the chargeable period beginning 1 January 2017. The legislation will become law through its inclusion in FA 2017, applying retrospectively. HMRC will use its collection and management powers to allow the responsible person to notify HMRC of an election from 23 November 2016.

The technical note on elections for fields to become non-taxable can be found here. The technical note was published on 23rd November 2016 to provide clarity and greater detail on the changes to elections to opt fields out and changes to returns, made at Autumn Statement 2016.

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How the legislation works

Legislation published at Autumn Statement 2016 alters the legislation governing the rules for opting fields out of PRT. It amends Schedule 20B of FA 1993. This legislation has effect from 23 November 2016 through HMRC’s use of its collection and management powers.

The ability to opt out and for a field to become non- taxable was introduced by Section 107 of FA 2008, which created a new category of non-taxable field (OT03515) at Section 185(IZA) of FA 1993.   Schedule 33 to FA 2008 introduced the new Schedule 20B to FA 1993.

The following paragraphs outline how the legislation works - paragraph references are to those of revised Schedule 20B.

Paragraph 1: The responsible person (OT04030) may make an election that the field is to become non-taxable, once they have the agreement of all of the participators in that field. An election to become non-taxable is irrevocable.

Paragraph 2: The election must be made in writing.

Paragraph 3: The responsible person must notify the Commissioners (HMRC) that an election has been made. The notification can be sent either by e-mail to ian.s.barker@hmrc.gsi.gov.uk, by post to PRT team, Bush House, Strand, London WC2B 4RD, or by any other reasonable method.

Paragraph 4: The election is deemed as having been made on the date the notification of the election was sent to HMRC. The responsible person may be asked to provide proof of when the notification was sent, either through proof of postage or an e-mail receipt.

Paragraph 5: The election has effect from the start of the first chargeable period after the election is made. The election will continue to have effect for all subsequent chargeable periods.

Paragraph 6: Once an election is made, no allowable loss that accrues from the oil field is an allowable unrelievable field loss (OT16250).  This is the case for any participator past or present, from losses accrued during the lifetime of the field. This includes losses accruing prior to the election being made.

Paragraph 7: Contains definitions relevant to the Schedule.

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Acknowledgement of election

Once the PRT team has received the notification of an election to opt out, it will provide an acknowledgement to the responsible person no later than 56 days after receipt. The date of acknowledgement will not affect the effective date of opt-out.

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Voluntary submission of Category 2 oils data

After the notification, HMRC will contact the responsible person and participators to discuss alternative arrangements for participators to continue to provide data on arm’s length sales of Category 2 oils (currently submitted through a PRT1A form).

Provision of Category 2 oils data after opting out will be on a voluntary basis and will have no impact on the validity of an election to opt out. It is important for HMRC to be able to continue to collect this data, as it is necessary for HMRC to be able to make accurate valuations for non-arm’s length sales of Category 2 oils. Accurate valuations benefit both HMRC and participators, and industry representatives have recognised this. As a result, at HMRC-industry working groups, industry representatives said that they would be willing to continue to provide this data on a voluntary basis.

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Tariff Receipts

While making a field non-taxable will have no tax consequences for the field itself, there would be implications on the assessment of tariff receipts in the hands of an asset owner on tariffs paid by such a non-taxable field.

Therefore paragraph 4 in Part 2 of Schedule 33 to FA 2008 amends OTA83\S9(5)(a) so that a field that has become non-taxable by virtue of an election made under Schedule 20B remains a user field for the purposes of the tariff receipts allowance legislation.

As a result tariff receipts received from an elected non-taxable field under FA93\S185(IZA) will still be eligible for tariff receipts allowance OT15625 in exactly the same way as before the election was made.