North Sea Oil Taxation

By Paul Homewood  

  

 

 

We’ve had some discussion about fossil fuel subsidies, so I though it worth just summarising the position with regards to North Sea oil.

 

Producers of North Sea oil are taxed in three ways:-

1) Petroleum Revenue Tax (PRT) – this only applies to fields operating, or with consent, prior to 1993.

PRT is charged at 50% of profits, specifically for that field. In other words, losses from one field cannot be offset against the profits from another.

2) Corporation Tax – this is normally at 30% of profits (after PRT has been accounted for). Note that this is higher than normal corporation tax, which is now 20%.

3) Supplementary Charge – this is an addition to Corporation Tax, and is set at 20%, calculated against the profit before Corporation Tax.

 

 

So we can summarise:

 

	Pre 1993	Post 1993
Profit	£100	£100
PRT	£50	NIL
Profit after PRT	£50	£100
Corporation Tax	£15	£30
Supplementary Charge	£10	£20
Total Tax	£75	£50
Net Profit after Tax	£25	£50

https://www.gov.uk/guidance/oil-gas-and-mining-supplementary-charge

 

As a non oil business would only pay Corporation Tax of £20, North Sea oil outfits are clearly paying much more than their share.

Wikipedia have a bit of the history:

 

Petroleum Revenue Tax (PRT) is a direct tax collected in the United Kingdom. It was introduced under the Oil Taxation Act 1975, soon after Harold Wilson‘s Labour government returned to power and in the immediate aftermath of the 1973 energy crisis, and was intended to ensure "fairer share of profits for the nation" from the exploitation of the UK’s continental shelf, while ensuring a "suitable return" on the capital investment by oil companies.

PRT is charged on "super-profits" arising from the exploitation of oil and gas in the UK and the UK’s continental shelf. After certain allowances, PRT is charged at a rate of 50% (falling to 35% from 1 Jan 2016) on profits from oil extraction. PRT is charged by reference to individual oil and gas fields, so the costs related to developing and running one field cannot be set off against the profits generated by another field. PRT was abolished on 16 March 1993 for all fields given development consent on or after that date, but continues in existence for fields established before that date. At the same time, the rate of PRT was reduced from 75% to 50%, but various reliefs from PRT for expenditure on exploration and appraisal were withdrawn.

 

For many years, oil companies were seen as cash cows, making “undeserved” super profits. Even recently that has been the case. In 2002, the supplementary charge of 10% was introduced, increased to 20% in 2006, and 32% in 2011. It has only been reduced to 20% again this year in the face of the threat to North Sea oil output from lower oil prices.

 

On top of all of this, of course, and the fuel duties paid by motorists, which totted up to £27.2bn last year. The idea that oil, or oil companies, are being subsidised is frankly nonsense.

The same applies to natural gas. The only fossil fuel which can be said to have been subsidised is coal, back in the nationalised days of the 1970’s and 80’s, and that was not so much a subsidy of fossil fuel as one for yet another inefficient nationalised industry.

Ironically, the BBC thought that was a good thing then!