North Sea Tax Revenues
By Paul Homewood
As requested, an analysis of the amounts paid in taxation by North Sea oil and gas businesses.
This is the latest chart from BEIS:
PRT is Petroleum Revenue Tax, a surcharge on fields given permission before 1993, subsequently cancelled in 2015.
RFCT is Ring Fenced Corporation Tax – basically ordinary Corporation Tax payable on profit which all businesses pay. But as it is ring fenced, oil and gas companies cannot offset losses from other parts of their business. Also it is charged at 30%, as opposed to the current rate of 19%. (See table below).
SC is the Supplementary Charge, an extra tax of 10% on profits in addition to RFCT. It was introduced at this level in 2002, hiked to 20% by Gordon Brown in 2006, and raised again to 30% in 2011 by George Osborne. This partially explains the jump in tax revenue between 2005 and 2014. As I say, it has since been cut back to 10%.
As all companies pay Corporation Tax, I have excluded this element, so the extra taxation, over and above normal tax, paid by North Sea oil and gas businesses looks like this:
The decline in recent years reflects three factors, apart from he aforementioned cut in SC and abolition of PRT:
1) Falling production
2) Lower oil prices.
3) Decommissioning Costs
The first two obviously reduce profits. And if they result in losses, previous taxes paid can be reclaimed against RFCT, PRT and SC.
Decommissioning costs are also allowed to be deducted from previous years’ profits, and taxation reclaimed. Given that oil fields are a finite asset, this is perfectly reasonable.
Tax rebates such as these are labelled as “subsidies” and “tax reliefs” by green groups. They are nothing of the sort, as companies are only recovering tax they have already overpaid.
Net revenue, excluding the ACT element of 19%, was minus £19 million in 2020/21, mainly due to the rock bottom levels of oil prices. With prices recovering to high levels, I would expect government revenues to recover strongly this year.
Nevertheless, if we take total tax revenue in the last 20 years, ie since 2001/2, it amounts to £51.4 billion. Again, this excludes the element of ordinary Corporation Tax, which added another £47.4billion.
Of course, these are not the only taxes paid for fossil fuel production or consumption. This year the government will rake in £28.8 billion from fuel duties for road transport.
Compare this to the £11.1 billion paid out in green subsidies this year:
APPENDIX
Corporation Tax Rates:
CORRECTION
As was pointed out in comments, the RFCT is currently charged at a higher rate than normal ACT, 30% compared to 19%.
This of course increases the EXTRA tax paid by North Sea oil, over and above ordinary company taxation
I have amended the graph and updated the numbers in the post.
Comments are closed.
NOT A LOT OF PEOPLE KNOW THAT 
It is worth pointing out that government did not trust the oil industry to build up a decommissioning reserve, which provided a convenient excuse to do it for them by collecting higher taxes up front. It was agreed that tax would be refunded to help with decommissioning costs. Of course, governments have since restricted the refunds. A lesson learned by the wind industry, which managed to get legislation that essentially prevents any attempt to impose higher taxation than applies to companies generally.
Is that true? No accountant would sign up to their accounts without an accounting reserve that could be met from a cash source. When I worked for an oil & gas company years ago we accumulated a reserve for every property.
It is only governments that cannot see the huge tax deficit being created, and will the public awaken to the enormity of the looming tax grab that will coincide with the lights going out?
Yesterday I received my new electricity tariff from Shell. Unit price has gone up 36% but the standing charge has rocketed by 73%. i presume this is to meet all the huge extra cost in keeping the grid going due to unreliable wind and solar. So that is on top of my part of the near £12bn a year in subsidy.
I spoke to a woman on customer services of a major supplier yesterday. She related that she had experienced a traumatic week as the new tariffs began reaching some of the customers and people are very upset naturally. She had one woman break down in tears over the phone as it will be a question of heat or eat for her family.
The tariff for me will more or less double to an estimated £4K per year unless the Government brings in a price cap which I think is inevitable. She said it is likely that tariffs would go up again in October and she was dreading a bad winter coming next time.
She was fully aware of the subsidies for renewables and the taxes on fossil fuels and she was not happy. As we agreed, we were never asked to OK Net Zero. I passed on the way to this website and I expect her have a look.
Who’d have her job?
Good to know this is happening now and not just in April, which is all I read. Let the anger grow! Much good can come from it.
Excellent summary Paul. It is good to have this information, particularly the explanation of the so called ‘subsidies”. I was struggling to imagine where these were coming from but i now understand that they are part and parcel of any businesses life cycle. The next time one of the green loons starts telling me how the oil companies are subsidised i am equipped to put them straight.
It is an obvious utter nonsense. Where does the subsidy apply is the question to ask? In other words, who is paying less than cost to get their product?
Clearly not drivers, who not only pay cost (including profit in this term) but a vast amount of tax on top. Nor is it airlines, who pay cost for their kerosene. Nor is it consumers for heating or cooking bills – cost plus VAT. None of the companies supplying these products get less than cost for the products they supply.
To claim producers are being subsidised is a literal nonsense unless their costs are somehow being paid by government. They clearly are not. Government does not give fossil fuel companies money to reduce the price they charge consumers.
So what product is subsidised? What product is reduced in price by government money? Not a single fossil fuel product.
Now if they are saying tax is a cost that is included in the price companies charge then tax is a cost to consumers. In that case, lower tax still isn’t a subsidy but simply a lower cost. The price we pay is lower but there is no subsidy because nobody is paying for that reduction.
From time to time we receive from Paul some really solid statistical information . This is one of those times and these efforts need to be kept or printed off to use when the belittlers and green groups fall back on their own misinformation and generalisations..
After the calls for oil/gas companies to pay a windfall tax after the recent price rises, why is nobody suggesting the pharma companies who have profited massively from covid be similarly targeted?
More to the point, why are wind and solar companies not being targeted for a windfall tax after the big rise in electricity prices from which they have befitted without incurring any additional costs.
Paul mentioned this about 10 days ago.
So what’s the “correct” price for us to calculate a windfall tax? And should we give back tax if prices fall hugely?
If you disinvested from fossil fuel companies I’ve got no sympathy now if you don’t get the dividends from them.
Dear All
UKCS oil and gas taxation is highly complex field and I am glad that Paul has had a shot at explaining at how it works. As a North Sea Oilman, I must point out, with respect, (as I love this blog) that Paul understates our case. RFCT is not just a slightly different corporate tax. It is levied at a rate of 30% which is more than 10% higher than regular Corporate Tax.
And PRT was not “cancelled”, it was zero-rated which is not the same thing. PRT was a particularly radical tax which was applied against “participators” in upstream fields. So the ringfence applied to oil companies in fields, meaning that the tax rate applied to any gross revenue from the particular field with no offsetting against losses made by the same company in other fields. PRT rates were often sky high reaching 70% in 1980.
Zero-rating is important, because the “big old” fields were developed pre-1992 (and hence subject to PRT) are now coming up for decommissioning. These fields produce little or nothing for some years prior to abandonment but the decoms cost can be massive, sometimes into the billions of dollars. The “twist” with PRT is that decommissioning costs can be taken against taxes paid right back to when the field began producing. This is only fair to the industry. In the case of RFCT and Supplementary Charge, decoms costs can be taken back against taxes paid back to a date in 2002. The normal rule for tax losses is that they can be taken back only for three years.
There are other tax elements which work differently, but I have no time to explain them right now. There is a rugby game on after all!
Suffice to say, that Paul is right that there are absolutely no “oil and gas subsidies” and that on the contrary, our high risk industry is one of the highest taxed (if not THE highest taxed) in the UK. Compare us to the subsidy -riven renewables industry. In fact, we should not speak of a renewables industry, only a “renewables subsidy scheme”.
Kind Regards
William
Thanks for that!
Is the 30% on RFCT on top of the 10% Supplementary Charge?
Great point William. As you say, renewables aren’t an ‘industry’, they are a ‘subsidy scheme’. As the old Sage of Omaha, Warren Buffet, who has made a fortune out of fossil fuels and, latterly, unreliables, once said, in investment and energy production terms ‘wind farms make no sense without the subsidy’. And, interestingly, with current vastly increased manufacturing, raw material and ongoing maintenance costs, even the subsidies might not be as attractive as they used to be.
I agree with Mike Beaumont, this is excellent material, of the sort we need when putting our arguments to the other side.
Paul
Yes. SC is on top of RFCT.
W
Meanwhile the government is determined to make no tax money at all from onshore gas drilling, by banning it and handing tax money to other governments including Russia for the same product.
Thanks Paul, excellent piece of work. When I asked for this the other day, I wasn’t expecting something so quick and comprehensive!
So that’s the 20 years of oil UK oil production. How about 20 years of petrol/diesel tax, and VAT on gas and heating oil?
Finally, what are the cumulative 20 years of subsidies paid out to renewables from the UK gov and from taxa payers bills.
I was thinking of 3 final cumulative values over 20 years – oil.gas production tax; tax on petrel/diesel/heating etc (ie fule duty and VAT) and finally the lovely sums paid to the renewable companies. I think being able to quote the three total numbers over 20 years would be a powerful talking point next some greeny idiot talks about “fossil fuel subsidies” in the UK.
Ok, did the fuel duty part myself from:
https://www.statista.com/statistics/284323/united-kingdom-hmrc-tax-receipts-fuel-duty/
The total for 20 years (ending 2021) was…….£507.5 billion!
Numbers here:
Year End Fuel Duty
2001 22.63
2002 21.92
2003 22.15
2004 22.79
2005 23.31
2006 23.44
2007 23.59
2008 24.91
2009 24.62
2010 26.2
2011 27.26
2012 26.8
2013 26.57
2014 26.88
2015 27.16
2016 27.62
2017 27.94
2018 27.88
2019 27.99
2020 27.57
2021 20.9
Just need the renewables payments now.
Sorry to be late to add something to this useful article.
Let me clarify that UKCS oil and gas tax in the UK is made up of RFCT at 30% and SC at 10% making a total of 40%. These taxes are similar but not utterly identical. There is a tax “break” with SC ONLY, which is an allowance of 62.5% on certain capital investments. This is targeted at field development programmes, which are the most capital heavy part of any oil and gas project. What this means is that if Oil Company A spends a qualifying £ then it gets to take a tax deduction against gross profit of £1.62and a half pence. Depending on the project this may significantly reduce SC or it may not. Marginal projects, naturally, are favoured.
In my view, Paul in his analysis should definitely include ALL RFCT monies received by HMRC because these are taxes paid by a risk-taking, non-subsidised industry which pays tax at DOUBLE the rate paid by the grossly subsidised renewables “business”. And bear mind that the current 40% rate is the lowest rate of oil and gas tax in the UKCS since at least 1975. It has been as high as a cumulative 90%!
Next time you hear the Guardian and other lefties bleat about oil and gas subsidies you should ask them if they would wish to move to the oil and gas “subsidised” regime: no subsidies at all (forget about ROCS/ Contracts for Difference etc) and a 40% tax. Would anyone actually want to purchase an unsubsidised supply of intermitent power?
More generally, note that the word “subsidies”, much like “hard border” and “lived experience” have become leftist weasel words. We need to attack them.
And Lord Deben and the CCC think we should end oil and gas drilling in the North sea. He admits that it might not make any difference to our emissions but will show leadership. Of course, we will just buy our oil and gas from somewhere else where they don’t mind getting the jobs, the tax take and energy security. (DT24 February 2022)
Are there any reserves (provisions in accountinbg terminology, I think) for decommissioning solar farms and windmills, battery plants and the like.