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HMRC internal manual

Oils Technical Manual

Computer systems: introduction

What types of computer system are encountered in the oil industry

The oil industry uses computer systems for stock, revenue and financial accounting. These systems are often integrated with commercial systems to include sales ordering, order fulfilment, delivery gantry management and meter control.

The fundamental principles of stock and revenue accounting are no different to computer systems in other duty suspension regimes in that the systems hold details of products, stocks, storage locations and movement transactions.

By retaining receipt and delivery transactions the systems can report stock balances and summarise movements by type, by product etc. However “oil” systems have added complexity in that:

  • revenue accounting is in standard litres;
  • products are moved in bulk and the quantities ordered, despatched and received will rarely balance;
  • duty paid, duty suspended and rebated product can be commingled; and
  • production processes are continuous, and product movements consistently span accounting periods.

From HMRC’s view, a unique feature of the oil industry is the use of on-line computer systems to establish transaction volumes.

These systems with little or no operator intervention continuously monitor volume, temperature, pressure and density measurement devices, control the positions of valves and the speeds of pumps.

Fulfilling HMRC’s requirements

To fulfil HMRC’s requirements a stock and / or revenue accounting system used in the oil industry would be expected to:

  • recognise products and their attributes such as heavy / light oil, tax code, regime status
  • maintain an accurate date & time to establish the applicable duty rate and accounting date;
  • record details of physical stock locations, a record of transactions for that location and the duty status of those movements; (as below)
  Duty-status   Duty-status  
From: Un-taxed to: Un- taxed  
From: Un-taxed to: Tax Paid  
From: Tax Paid to: Tax Paid  
From: Tax Paid to: Un-taxed  
  • where appropriate perform Standard Temperature Accounting (STA) conversions;
  • contain audit trails to prove the complete and accurate accounting of the system; and
  • provide resources to the taxpayer to advise on revenue accounting procedures.

Communication with other computer systems

Flow computers can be integrated into computer systems controlling loading and production of meter tickets and maintained remotely.

The information which can be requested from the flow computer will include:-

  1. totaliser readings;
  2. current values of temperature, density, pressure, volume correction factor, gross & natural flow rate;
  3. alarms;
  4. constants used in calculations; and
  5. standard operating range parameters, e.g. minimum & maximum temperatures, minimum & maximum flow rates.

The flow computer can also be passed the information at 4 & 5 above.

Obtaining Audit Service assistance with existing computers systems

In order to obtain the assistance of Audit Service when investigating oils trader’s computer systems, Audit Service should be approached through the appropriate Senior Tax Specialist or Sector Specialist.

Obtaining Audit Service assistance with new computer systems

Audit Service should be involved at an early stage on any proposals made by oil companies or oil warehouse-keepers to install new accounting or control systems that have a revenue significance.

Scope of guidance

The following is not intended as a definitive guide to all flow computers but instead as a general guidance on their technical functions and possible controls.