Author Archives: Philip Ward

26 May 2022

Chancellor announces a new oil and gas tax charged at 25%

This afternoon the Chancellor announced the recently anticipated, following significant political pressure, tax rise on the profits of companies that produce oil and gas from the UK and UK Continental Shelf. It does not apply to other energy sector players, such as the producers of green energy, as had been predicted in the Press.

Rather than increase the rates on existing taxes the Chancellor chose to introduce a new oil and gas tax called the Energy Profits Levy.  The Energy Profits Levy (the “Levy”) is effective from today and will be charged at a rate of 25%.

The Levy will be temporary and will be phased out if oil and gas prices return to “historically more normal levels” and in addition the legislation will include a sunset clause which will mean the tax is abolished from the end of 2025 at the latest.

The new Levy will be applied to “UK oil and gas profits”, which means ring fence profits from UK and UK Continental Shelf production subject to a number of adjustments.  One of the stated adjustments being leaving finance costs out of account as for SCT.  However, the RFCT and SCT profits to which the new Levy is applied will not be reduced by brought forward tax losses, nor decommissioning costs. Any “Levy” losses can however be augmented by the Levy allowance and will be available for carry back under normal CT rules (without the extended ring fence carry back), carry forward, and group relief, against other Levy profits.

It is not clear if the Levy will apply to ring fence capital gains, although that would have little economic logic given the Levy is only due to apply for a short period of time, and the value generating a capital gain will be representative of all future profits. As such this could create a big disincentive to assets moving hands into companies wanting to invest while the Levy is in place, and it is hoped that the exclusion of capital gains will be one of the “number of adjustments”.

The Levy will be payable along with the three instalments for RFCT and SCT, although for December year end companies the first payment will not be until January 2023.

Also announced is a new investment allowance.  We believe this applies to expenditure incurred from today.  The additional investment allowance appears to operate solely to give relief against the new Levy, albeit at an 80% rate. It will be given on top of the capital allowances relief that will reduce the profits on which the Levy is charged. 

The new investment allowance was described by the Treasury as meaning tax relief of more than 91p for each pound invested when combined with existing reliefs. This is made up of RFCT relief of 30p, SCT relief of 10p, SCT investment allowance relief of 6.25p, Levy relief of 25p, and Levy allowance relief of 20p. However, this rate of relief only applies if a company is already paying CT and SCT, and therefore reduces to 45p where a company has brought forward tax losses. If companies were still investing in PRT fields which had paid tax in the past the relief would be more than 100% of the costs.

Overall, the Chancellor referred to the measures providing an extra £5bn in tax in the next year.


These changes will be very unwelcome news to both upstream companies and the wider supply chain. 

Companies which have invested in new projects that have just started to produce will be particularly hard hit as their past investment costs will not be deductible against the new Levy.

As soon as further details are announced, CW Energy will provide further analysis.

CW Energy LLP

26 May 2022

11 Aug 2021

Notification of uncertain tax treatments – draft legislation published

The Government is moving ahead with the introduction of new rules which require “large” businesses to report uncertain tax treatments. Draft legislation has been included within the recently published Finance Bill 2021-22.  In this newsletter we summarise and comment on the proposed notification rules.


The draft legislation was published alongside the summary of responses to the previous further consultation that opened in April.  Draft HMRC guidance is expected in the “coming weeks”.

In overview, the rules apply to corporation tax, VAT and PAYE.  Only large businesses are in the scope of the rules being defined as those that have UK turnover of more than £200 million or a UK balance sheet total of more than £2 billion.

For further background to the provision please see our April article

Requirement to notify – the “triggers”

The major concern with the proposals as previously communicated were the largely subjective tests (the “triggers”) that were to be applied to determine whether a tax treatment may need to be notified to HMRC.  Some of these tests have now been dropped and the original seven triggers have been reduced to three triggers in the draft legislation.  Notification may be required where:

  • provision has been recognised in the accounts, in accordance with generally accepted accounting practice, to reflect the probability that a different tax treatment will be applied. It would appear that this could be a provision against a deferred tax asset as well as current tax.
  • the tax treatment applied relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the known way that HMRC interprets or applies the law. The “known way” must be apparent from:
    • guidance, statements or other material of HMRC that is of general application and in the public domain; or
    • direct company dealings with HMRC (whether or not they concern the actual amount or transaction).
  • it is reasonable to conclude that, if a tribunal or court were to consider the tax treatment, there is a substantial possibility that the treatment would be found to be incorrect in one or more material respects (whether or not HMRC or anyone else is likely to make a challenge).

Tax amount at stake must be over £5m

For the uncertain tax treatment to be notifiable there must be more than £5m of tax at stake (which includes SCT) in the year ended on the last day of the period covered by the return.  In order to calculate whether the threshold has been exceeded in any year all related uncertain amounts that follow substantially the same tax treatment must be aggregated.  For each uncertain amount an “expected amount” must then be calculated.  This expected amount is the amount of the alternative treatment on which the accounting provision is based, following the HMRC known position, or the position the tribunal or court would find correct (depending on which trigger was satisfied).

Where the uncertain tax treatment satisfies more than one of the triggers then all expected amounts must be calculated with the largest difference between uncertain amount and expected amounts being used in determining whether the threshold has been met.

The summary of responses to the consultation notes that guidance will include examples of how to calculate the tax impact in different scenarios.

General exclusion where HMRC already know of the treatment

There is an exemption from notification if it is reasonable for the company to conclude that HMRC already have available to them all, or substantially all, of the information relating to a notification.

Transfer pricing and branch exclusions

There is an exemption from the notification requirements where the uncertain treatment relates to transfer pricing.  The treatment does not need to be reported where it satisfies only the substantial possibility trigger and the uncertainty relates to the application or adoption of a transfer pricing method (i.e. a pricing matter).

There is a similar exclusion for attribution of profits to a UK permanent establishment of a non UK resident company where only the substantial possibility trigger applies to the treatment.

Penalty regime

A penalty for failure to notify is to be charged on the business.  For a first failure to report there is a penalty of £5,000.  If the business has had a failure in respect of the same relevant tax (e.g. failure to report a corporation tax uncertain tax treatment) in the three years prior to the current year then this counts as a second failure with a penalty of £25,000.  If there is more than one failure in respect of the same relevant tax in the three years prior then a penalty of £50,000 may be charged.

A penalty will not apply where the business has a reasonable excuse for a failure to notify.  The legislation notes that an insufficiency of funds is not a reasonable excuse unless attributable to events outside the business’s control.  It also states that where the business relies on another person to do anything, that cannot be a reasonable excuse unless the business took reasonable care to avoid the failure.


The notification rules are to apply to corporation tax returns that are required to be made on after 1 April 2022.  Therefore all corporation tax returns for companies with years ending after 31 March 2021 will come within the new rules with respect to corporation tax.

Any corporation tax notification must be made on or before the date on which the corporation tax return is required to be made i.e. 12 months after the year end.  Therefore corporation tax returns could be submitted earlier than the due date and any notification would still be in time as long as it was filed on or before the due date.

The exact form and method of notification has not been finalised with the draft legislation stating that notification must be given by such means, and in such form, and include such information, as is specified in a notice to be published by HMRC.


The draft legislation published provides a framework for the rules and how they will apply.  It leaves a lot of detail to be filled in by HMRC.  There are a number of areas that cause concern in the draft legislation and we highlight some of them here:

  • This is a new concept but there has been no indication that HMRC will implement these rules with a similar initial “light-touch” approach that was deployed with the introduction of the Senior Accounting Officer rules;
  • HMRC guidance is given almost a law like status by these provisions. Anyone who has worked with HMRC guidance knows the comments are often very general in nature.  Using the guidance to seek to understand whether HMRC has provided a view on the correct tax treatment of a given transaction will therefore be difficult;
  • Where the guidance provides a clear view on the interpretation of a particular piece of law this would appear to result in a requirement to notify the transaction (if the facts of the transaction cannot be sufficiently distinguished) even if that guidance is not considered correct by the business (due to recent case law or otherwise);
  • In order to determine whether the £5m threshold is reached may require an assessment of what HMRC or a court may think is the correct treatment. Applying this threshold where a tax treatment has consequences across a number of tax years will be challenging;
  • Seeking to understand what HMRC believes is the correct treatment when HMRC guidance stretches to thousands of pages of information is very onerous;
  • Potentially a business will need to search for a HMRC tax treatment in the public domain. With no definition of public domain, that seems potentially very widely drawn and very difficult to say with any certainty that the entire public domain has been investigated;
  • And perhaps the most opaque of all is what constitutes a “substantial possibility”. It is possible that this could be triggered with say a 20% or 30% likelihood that the treatment used is incorrect.  We expect this will have to be further defined as such a hair-trigger would have many businesses notifying a very significant number of tax treatments.

When the guidance is published we shall provide a further update.  In the meantime, businesses should start considering tax treatments that may need to be notified and develop a process for managing this obligation.

CW Energy LLP

August 2021

15 Oct 2020

What does the recently announced proposed Premier/Chrysaor merger tell us?

Premier and Chrysaor have announced that they are to merge, in a Press Release issued on 6 October 2020, with further details included in presentations published at the same time. The proposed merger remains subject to shareholder and stakeholder approvals and it is possible that further details may be included in the shareholder circular.

Overview of the merger

The main relevant features of the transaction are:

  • Premier will acquire Chrysaor by issuing new Premier shares to Chrysaor’s existing shareholders; 
  • The enlarged group will settle debt and hedging liabilities through the payment of $1.23bn cash and a further issue of new Premier shares;
  • Premier’s existing letters of credit will be refinanced;
  • The payment to settle debt and hedging liabilities is being funded by draw down of an extended Chrysaor reserves based lending facility;
  • As this is a reverse takeover Premier’s shares will need to be re-admitted for trading on the main market of the London Stock Exchange. 

The transaction is expected, if it obtains the necessary approvals, to complete in Q1 2021.   

For Premier shareholders the main benefit would appear to be that it avoids the risk of losing their investment as a result of the significant Premier debt levels, although existing Premier shareholders are expected to hold only approximately 5% of the merger group (the other 18% allocated to Premier “stakeholders” is ear-marked for the Premier lenders).  

For Chrysaor investors the benefits are more compelling and include access to a c.$4.1 billion pot of Premier tax losses. 

Premier’s tax attributes

Prior to the announced merger Premier has been clear on its tax advantaged status due to its existing ring fence losses and investment allowances.  A significant portion of these losses were acquired on the acquisition of Oilexco more than 10 years ago. According to the announcements the parties are seemingly confident that the transaction can accelerate the use of these tax losses.

In its 2017 accounts Chrysaor had $1.5 billion of tax losses.  Published accounts of Chrysaor for 2019 show that it had current tax liabilities.  This suggests that the existing Chrysaor asset base is likely to be able to utilise the Premier pool of allowances in relatively short order. 

Interestingly the transaction that Premier announced in June with BP to purchase their Andrew and Shearwater interests will now not go ahead. There may be a number of reasons for this but in the press, Tony Durrant (Premier CEO) was recently quoted as saying:

……. the [BP] deal would have been a “good transaction” for Premier Oil as a standalone business ..However, he said the BP deal would have “diluted” the tax “synergy” created by the combination with Chrysaor.”

We understand that one of the factors which had helped facilitate BP and Premier being able to agree a deal was the ability to use Premier’s losses against Andrew and Shearwater profits. It appears, based on this statement and the merger Press Release, that there is an expectation that Premier’s tax losses can now be fully utilised by the activities of the enlarged Premier/Chrysaor group, such that the tax synergies that made the BP deal “work” no longer apply.  

In order to access Premier’s brought forward tax losses, legacy Chrysaor assets will need to be transferred to legacy Premier companies, and any incremental tax advantage will only start to accrue after such transfers.  The group will therefore need to navigate the anti- avoidance rules that can restrict the use of brought forward tax losses where there is a change in ownership. Given, the 2017 changes now mean that the anti-avoidance rule can bite if a loss maker has major changes in its trade in the five years after a change of ownership, and the statement that loss utilisation is to be accelerated post-merger, we would expect the parties to have had some engagement with HMRC on this issue. There is however no mention of this in the Press Release. 

As pointed out in our April 2020 Newsletter, HMRC have published some helpful guidance in their manuals on the application of the major change rules, and the fact that they will potentially give clearances. This has encouraged potential investees to look at acquiring companies with losses, whereas in the past, the uncertainty of the application of these rules would have led them to not even consider it. 

It seems clear that the “acquisition” of Premier would fall squarely within the category of transactions, as set out in the guidance, for which HMRC say they would not look to apply the rules: being the acquisition of a “genuine, viable and commercially carried on trade”. However it seems unlikely, given the potential value involved, that the Parties will have been content to simply rely on the published guidance.  


This deal is another example of where a transaction can deliver value through the effective use of tax attributes. There are a number of different techniques that can be used depending on the respective tax attributes of the parties and the profile of the assets.

CW Energy has extensive experience of structuring such commercially driven arrangements and would be pleased to discuss how such techniques can be applied to your circumstances.

CW Energy LLP
October 2020

30 Oct 2018

2018 Autumn Budget

The Chancellor delivered his 2018 Autumn Budget today.

In the Chancellor’s speech there was a welcome confirmation that North Sea tax rates would remain unchanged, together with an announcement that the Government would launch a call for evidence on creating a global centre of excellence for decommissioning in Scotland.

Within the detailed announcements there was nothing further directly applicable to the upstream oil & gas sector, other than the Finance Bill contains the previously announced “late life” asset proposals on transferable tax history (TTH) and PRT relief for decommissioning expenditure.

These issues have been dealt with extensively in previous Newsbriefs – see our 16 July 2018 Newsbrief at the time the draft legislation was published, and our 22 November 2017 Newsbrief on the 2017 Autumn Budget, when these proposals were first set out

Since publication of the draft clauses this summer there have been a number of workshops, attended by Government officials and industry, to work through the draft clauses in detail. As a result of this work a number of changes to the original clauses, predominantly those relating to TTH, have been made. These changes do not however alter the fundamental operation of TTH: rather they ensure, in some cases, that the rules work as Government intended, but also the scope of HMRC to retrospectively amend or deny a TTH election has been limited, to give buyers and their financiers more certainty that the TTH will be available.


We think the workshop process has, in general, been very productive and, although there are still some differences of view between the industry and Government representatives, the final legislation will be more “fit for purpose” as a result.

The TTH and PRT relief changes are thought to be a useful additional “tool in the tool kit” when constructing commercial deals, but will not be appropriate or necessarily relevant for all deals, and it remains to be seem how often they will be used. 


CW Energy LLP

29 October 2018

If you would like to discuss the Autumn Budget, please contact your normal CWE contact.

16 Jul 2018

Finance Bill and Decommissioning

Decommissioning developments; more options.

Draft clauses for the next Finance Bill were published recently which included  a number of measures directed at the oil industry,  intended to assist sales of “late life” assets. 

In particular the Finance Bill includes legislation to give effect to the long awaited transferable tax history (TTH) scheme, and proposals to deal with the PRT treatment of “retained” decommissioning obligations following a licence sale.

These changes are to be effective for field transfers obtaining OGA consent on or after 1 November 2018.


For corporation tax (CT) and supplementary charge (SCT) the TTH changes are intended to facilitate the transfer of mature field interests to companies which would otherwise be unable to obtain effective relief for decommissioning costs on the transferred assets, because they would  not have paid enough corporation tax.

The effect of the TTH rules is that a seller will be able to transfer some of its past tax payment history on a licence sale. This transferred history acts as if it were tax paid by the buyer such that the buyer will be able, subject to the detailed restrictions in the legislation, to obtain a repayment of CT and SCT paid by the seller.

The draft legislation closely follows the approach set out in the outline which was published at the time of the Autumn 2017 Budget (see our newsletter dated 22 November last year, The requirement for independent verification of the amount of TTH being transferred has, however, been dropped; with the TTH amount now being capped by reference to the decommissioning cost estimate set out in the most recent decommissioning security agreement (DSA) for the transferred field.

The legislation does allow TTH to be applied to intra group transfers but only where the field interest transfer is in anticipation of a subsequent third-party asset or corporate sale which must complete within 90 days of the intra group transfer completing. The legislation also permits TTH to be transferred by the original purchaser to a new purchaser on the onward sale of some or all of the acquired field interest.

TTH must be attached to a particular field. However once activated it is treated in the same way as if the profits representing the TTH were earned by the buyer in the accounting periods in which they actually accrued to the seller, and  can be accessed by decommissioning losses from any of the buyer’s fields, subject to the normal loss offset rules.  

Activation of TTH only occurs once the purchased field has  finally ceased production and only to the extent the cumulative profits from the purchased field are less than the purchased field’s total decommissioning costs.  The buyer’s profits from the field must be tracked each year with the amounts included in the relevant tax return. The buyer must also appoint a “senior tracking officer” who must certify to HMRC annually that the tracked profits have been computed in accordance with the legislation.


There is no doubt that the TTH scheme is an innovative proposal to help with  the difficulties that can prevent the transfer of late life assets, and it is clear that the Government has listened carefully to the representations made by industry. The draft legislation includes a number of features which will mean that the scheme can have the widest application possible, including the generous limit on TTH which can be transferred, and the ability for the scheme to apply to hive downs, and on-sales.   

However, the key restriction on TTH is that it can only be activated to the extent that the decommissioning costs incurred in respect of the transferred field assets exceed the profits from that same field. 

This restriction has been introduced to prevent tax history effectively being traded as a commodity or to enhance seller’s own decommissioning relief.  We therefore  expect TTH to be used relatively infrequently and that alternative structures will continue to be commonplace in asset and share sales, reflecting the particular circumstances of the seller and buyer and the asset in question.

There are a series of detailed administrative provisions which could be onerous, but it is hoped that these will not deter the facility being used where appropriate.  

There remain a number of areas of uncertainty such as the interaction of the rules with Investment Allowance. A number of workshops are to be held with Government to review the detailed legislation.


The PRT changes deal  with two distinct  commercial structures for transferring field interests with the intention that in both cases it will be the buyer who will be able to obtain PRT relief for its “share” of costs.

The first part of the measure deals with a situation where the buyer “incurs” decommissioning costs following the acquisition of an interest in a field but under the commercial arrangements all or part of the cost is to be funded by the seller. The changes ensure that the PRT subsidy rules will not apply in such cases and the buyer will be able to obtain relief.

The second part of the measure is aimed at arrangements where the obligation to incur decommissioning is not passed on to the buyer but retained by the seller, for example as a result of the seller remaining a party to the JOA or DSA. 

This new rule provides that the seller is not to be treated as incurring expenditure where  it is not a licensee in the field area at the end of the transfer period, but any such expenditure is deemed to be incurred by the buyer.


The switch off of the subsidy rules is a welcome modification. Interestingly the switch-off does not apply if the asset changes hands by means of a share sale but it is generally easier to refute any contention that an adjustment to the sale price for the shares is a subsidy for the target company.    

The second measure is clearly aimed at preventing a seller being able to obtain effective PRT relief against their historic profits in preference to the buyer’s future profits (and so “missing out” a period of profits which have been subject to 0% PRT). 

Although in our experience the possible PRT “upside” available if a seller retains decommissioning is rarely a material consideration in structuring the deal, HMRC have been concerned that the introduction of the 0% rate for PRT and the ability for 0% periods to be missed out undermines the integrity of the PRT system. 

Although this legislation will deny relief for a seller who retains the decommissioning obligation without retaining an interest in the licence we assume HMRC are confident that this will not give rise to a claim under the DRD on the basis that a seller who was not a licensee would not have had a claim under existing law.  

As with the TTH rules there are a number of uncertainties with how the new rules will operate, for example, the precise scope of the deeming rule when sellers retain the decommissioning obligation while not remaining as a licensee.  

Final comment

We will be reviewing the draft legislation in full over the next few weeks and will share further comments in due course.

13 Jun 2018

Loss Streaming Latest

HMRC – 2    Taxpayers – 1

The taxpayer has been unsuccessful in their appeal against the Upper Tier Tribunal decision in the Leekes loss streaming case.

This case was discussed by CW Energy in our Newsbrief of 16 March 2015 and also on 22 July 2016.

The Court of Appeal have closely followed the reasoning in the UTT holding that the effect of section 343(3) ICTA 1988 is that the successor to the trade previously carried on by another company under the same ownership was only entitled to set losses transferred to it against the profits the predecessor would have earned, absent the transfer.

The Court rejected the argument that the streaming provisions only apply where there are transfers of part of the activities or part of the trade of the predecessor and saw no difficulty in the fact that the legislation only explicitly appears to provide for the need to apportion costs and income in the case of such part transfers.

The reasoning behind the decision of the Court is that they perceived that allowing losses to be set against the successor’s profits other than those transferred in would have given the successor an unwarranted benefit as compared to the position of the predecessor had no such transfer occurred. It seems that the court believe that to find in favour of the taxpayer would have provided an opportunity for tax avoidance. The key argument in refuting this perceived benefit, which does not seem to have been put by the taxpayer, is that it would have been open to the group to have injected the activities carried on by the successor into the predecessor in which case the losses of the predecessor would have been available to shelter the combined profits, on the basis that the activities would have almost certainly have been treated as carried on as a single trade.

The provisions under consideration are the pre-consolidation provisions now found in Part 22 CTA 2010, however given the grounds for the decision it seems clear that this decision equally applies to the current wording.

It is hoped that the taxpayer will appeal and that the Supreme Court will look to place more emphasis on the precise wording of the relevant section which we believe favours the taxpayer’s interpretation rather than HMRC’s.

This continues to be a very important decision for the oil and gas industry, and the loss streaming rules remain a trap for the unwary when considering restructuring whether following an acquisition or indeed simply in cases where an existing group structure is being reworked.

If you would like to discuss the issues raised in this note, please contact your normal CWE contact.

19 Jul 2017

Finance Bill (no 2) 2017

Corporation Tax loss reforms

Impact on ring fence losses  

Readers will be aware that the Government is proposing some quite significant changes to the rules dealing with the use of carried forward losses. Draft clauses were included in the Finance Bill published earlier this year. These provisions were however pulled from the truncated Bill which has passed into law, but revised legislation to be included in the Finance Bill to be published after the summer recess, has recently been reissued. These revised draft clauses are substantially the same as those included in the original Finance Bill, but government has taken the opportunity of the delay to correct some of the anomalies in the previous draft which related to the use of ring fence losses.

We reported In April on a number of potential anomalies to the ring fence loss rules. In particular, we viewed several items as inconsistent with the principle which we thought had been proposed by government, that the offset of ring fence losses against ring fence profits would not be impacted by the reforms. The changes that have been made are as follows

  1. The RFES rules have been amended such that pools can include post 1/4/2017 losses. A number of other changes to these rules are included to cope with the new loss carry forward rules.
  1. The transfer of trade rules which allow trade losses to be transferred from the predecessor to the successor company are to be preserved not just for pre 1/4/2017 losses but also for ring fence losses arising after this date, including decommissioning losses.
  1. The extension of the review period from 3 to 5 years included in the previous draft is to be applied to the ring fence when considering whether there has been a major change in the nature or conduct of a ring fence trade.


Decommissioning losses have however been carved out from this extended period in the latest version of the legislation recognising presumably that the Finance Act 2013 legislation needs to be preserved to prevent potential claims under Decommissioning Relief Deeds.

The fact that the ring fence has not been completely carved out from this change is particularly disappointing given the representations that have been made by industry on the adverse effect these rules have. To now make them worse seems perverse. The application of the rules in general continues to be discussed with HMRC as they are seen as a major impediment to getting the dwindling North Sea resources in the right hands to assist with the government objective of maximising economic recovery (MER) and this issue is currently being dealt with as part of the ongoing consultation on late life assets. It seems unlikely that a blanket exclusion will be introduced but its hoped that some helpful guidance will come out of these discussions.

There are a number of further changes to the original draft wording with restrictions introduced which apply to the offset of ring fence losses against non ring fence profits, essentially to bring these rules in line with the non-ring fence loss rules. These are however thought to have limited practical application.

We will continue to review the changes and will update readers in due course

03 Jan 2017

Staff Changes

Ian Hack, Director

We are pleased to announce that Ian Hack, who joined CW Energy in 2012 after a long career with HMRC, has been made a Director of CW Energy LLP. This promotion recognises Ian’s increasingly strong contribution to the business since joining the firm.



Janusz Cetnarowicz, Partner


We are also pleased to announce that Janusz Cetnarowicz, who was a director and founder member of CW Energy Tax Consultants Ltd in 1990 has been appointed a partner of CW Energy LLP with effect from 1 January 2017.




Finally we record that after over 26 years with CW Energy Stewart Norman has retired from the business. Stewart was a founder member and has been an integral part of CW Energy since inception and we wish Stewart and his family a long and happy retirement.

With the changes announced today we believe that CW Energy continues to be in a strong position to offer clients the very best advice and support.

23 Nov 2016

2016 Autumn Statement

The Chancellor delivered his Autumn Statement today.

There were no new fiscal measures directed at the oil industry apart from an announcement that petroleum revenue tax (PRT) administration is to be simplified with immediate effect.

The PRT administrative changes are: firstly, that the PRT opt out election process is to be simplified; and secondly for participators who choose not to opt out the returns process will be simplified.

Non-taxable field election

It has been possible to opt out of the PRT regime, and the field to become a non-taxable field, for a number of years, but only if it could be demonstrated that there was no reasonable expectation of PRT profits on the field.  The reduction in the rate of PRT to zero percent from the beginning of the year did not of itself extend the number of fields which could take benefit of the election under the current law.  Going forward there are to be no conditions attached to the making of an election, other than that the election must be in writing and will be irrevocable.

A consequence of making an election is that no loss accruing in the field can be claimed as an unrelievable field loss (UFL). This is unchanged from the previous rule.

As under the current rules, only the responsible person can make the election, and he must first have obtained the agreement of all other participators for it to be effective.

The Treasury Press Release covering this matter states that HMRC will discuss with any field owners making such an election alternatives to providing the data currently required in the PRT 1A return covering certain non-arm’s length sales of liquids. Provision of such data will however be on a voluntary basis.

The election will have effect for all chargeable periods commencing after the date the election is made.


We presume that any fields where there is a possibility of recovering PRT which has been paid in the past, or where there is a possibility that a UFL might arise in respect of the field for any partner, will not make the election. It is possible that partners in a field may have different positions which may frustrate the election being made. Indeed, it is important that companies who are contacted by the responsible person in a field should critically assess whether there are circumstances where a UFL could be created even where it appears that losses generated by decommissioning will not exceed historic field profits.  

Although the relevant legislation will not be enacted until Royal Assent of the Finance Act 2017 (typically towards the end of July next year) the amendment to the existing legislation is stated to have come into effect today, and it is understood that HMRC will accept that elections made before the end of 2016 will have effect such that PRT returns for CP1 2017 will not have to be filed (although the returns due in February 2017 for CPII 2016 will still have to be filed). 

Removal of PRT reporting requirements

For those fields which don’t take advantage of the new election (and for all taxable fields in respect of CPII 2016) the returns which have to be submitted for each field are to be simplified. This does not require legislative change.

It will no longer be necessary to calculate oil allowance, nor will it be necessary to calculate instalment payments or payments on account. In both cases this information will be of no relevance given the rate of PRT has been permanently reduced to zero for all chargeable periods, commencing 1 January 2016 and subsequent. Nor will volumetric units need to be converted into metric tonnes.

This change is made with immediate effect and will therefore apply to any returns that need to be submitted next February in respect of CPII 2016.

The Press Release issued states that the HMRC return forms will only be updated at some time in the future, but the parts of the forms relevant to these matters can simply be left blank when submitting the CPII 2016 and later returns.


These changes are welcome for companies who decide they still want to file PRT returns for particular fields, although the simplification is fairly minimal, and it is not thought that this will give rise to any significant compliance cost savings. The industry had requested a number of other changes such as annual returns, and deferral of filing deadlines. Such changes would require legislative change and it appears that the Government have taken the easy option which is unlikely to have any real benefit to industry. It is hoped that the other changes requested will be implemented by Government in due course. 

Other matters

There are a whole raft of other issues which industry has raised with Government as being important in achieving MER, such as the extension of the Investment Allowance regime for infrastructure tariffs, transferability of corporation tax capacity, and a number of technical PRT issues mainly around decommissioning.

Industry is also still awaiting the Statutory Instrument to be laid before Parliament, to give effect to the extension of the scope of the Supplementary Charge Investment Allowance relief to certain non-capital discretionary operating expenditure and to expenditure on leased assets. This measure is effective from 7 October 2015 and will be relevant to companies filing their 2015 corporation tax returns over the next 5 weeks if they have not already done so.


It is disappointing that none of the other issues raised by industry have been addressed at this time. The Press Releases do not even give an indication that any of these other matters are still under consideration, but it is hoped that progress can be made over the next year on a number of these issues with some much needed changes hopefully being introduced in Finance Act 2018. 

CW Energy LLP

23 November 2016


07 Sep 2016

Finance Bill finishes third reading in the House of Commons

The Finance Bill 2016 completed its third reading in the House of Commons yesterday (6th), and has now been passed on to the House of Lords. As it is a money bill, its terms cannot be amended by the House of Lords so the committee stage, report stage and third reading there are just formalities. 

The first reading in the Lords also took place yesterday and the second reading and remaining stages are scheduled for 13th September, after which the Bill should receive Royal Assent.

Thus as of today the Bill has been “substantively enacted” for the purposes of IFRS and UK GAAP, and the rates set out in the Bill can now be applied. For ring fence companies the Bill confirms the 0% rate of PRT enacted under the Provisional Collection of Taxes Act (in section 140 of the Bill) and applies the Supplementary Charge rate of 10% with effect from 1st January 2016 (section 58 of the Bill).

For companies who do not have a December year end the profits of the accounting period straddling 1st January 2016 are apportioned on a time basis.

For companies that report their results quarterly, the quarter to 30th September will reflect the lower rate of SCT.

Our comment: 

Although the reduction in tax rates is welcome overall, for many companies this will result in a tax charge resulting from the reduction in value of their losses carried forward.