The Autumn Statement has introduced additional support to reduce the administrative burden for the oil and gas industry associated with operating the petroleum revenue tax (PRT) regime, now that the tax is zero-rated
The measure will simplify the process for opting fields out of PRT. The responsible person for a taxable oil field will be able to remove the oil field from the PRT regime simply by making an election to do so, and then notifying HMRC.
Previously, the responsible person had to show that the field would never produce assessable profits for any participator in the field at any point in the future, or that any assessable profit would be equal to or less than each participator’s share of the field’s oil allowance.
This meant a substantial quantity of data was required to provide assurance to HMRC that there is no tax risk to the Exchequer before a field can be opted out of the PRT regime.
Additionally, the measure will simplify certain reporting requirements for those participators who remain in the PRT regime by removing some elements which are no longer relevant. These relate to the oil allowance and the tax liability instalment payment reporting requirements.
The government is making these changes following the permanent zero-rating of PRT from 1 January 2016. At the time, it did not abolish the tax because some companies still require access to their tax history for carrying back trading losses and decommissioning costs.
Following the zero-rating, HMRC carried out a review of the PRT administrative regime over the summer which identified a reform of the opt-out rules as a key priority for industry.
The new legislation for opting fields out of the PRT regime will have effect from 23 November 2016. This means that the responsible person will be able to elect to opt fields out of the PRT regime for chargeable periods beginning on or after 1 January 2017.
The legislation will apply retrospectively. HMRC will use its collection and management powers to allow the responsible person to notify HMRC of an election from 23 November 2016. If the simplified election is not approved by Parliament, then companies will need to submit the outstanding returns, but will not subject to late penalty charges.
The removal of the reporting requirements for oil allowance and instalment payments will apply to the chargeable period ending 31 December 2016 and all future chargeable periods. However, HMRC says the relevant forms will not be updated until a later date, as part of ongoing transformation work. The change will be communicated directly to industry, and in updated HMRC guidance.
HMRC’s policy paper Petroleum Revenue Tax cutting administration costs for the oil and gas industry is here.
