There are a number of consequences from the reduction in the PRT rate to zero and we have highlighted a few in this note.
Reserved expenditures
One immediate action is to try and accelerate the decision on any past expenditure claim where a decision has not yet been taken. Where there are reserved amounts on Schedule 5 or 6 claims (appearing on the decision notice as amounts on which no decision has been made) at the time of the issue of assessments for CPII 2015, due on 31 May 2016, any subsequent allowance is given in a later period’s assessment. As the PRT rate will be zero in these later periods, effective relief may be lost (unless the expenditure can be added to a loss carry back claim into a pre 2016 period). In these circumstances it is better to have the costs disallowed before 31 May this year, as the decision can then be appealed, and the date of the appeal then crystallises the period in which any subsequent allowance is processed i.e. CPII 2015 if a decision is appealed before the assessment date of 31 May 2016.
Any such reserved amounts should have been accompanied by an enquiry from HMRC and it is therefore important to supply responses as soon as possible. If not HMRC could argue they were not in a position to be able to make a decision. HMRC’s assessment process requires some lead time such that the time for making CPII 2015 expenditure decisions would normally expire in early May. If a response is not possible by the end of April it may still be worth asking the Inspector to disallow the expenditure to facilitate an appeal.
PRT opt out election
Where a field has no PRT payment history it should now be a simple process to elect out of PRT. If however PRT has been paid in the past a view will need to be taken as to how likely it is that future losses can be carried back into the periods when that tax was paid. In doing this it is necessary to take into account the displacement of oil allowance. One also needs to consider the PRT history of the field as a decommissioning loss carry back to a previous owner could provide effective relief.
In addition one would want to look at whether there is any possibility of an Unrelieved Field Loss claim, which could be used to give effective relief in another field with a PRT payment history. If it is considered that there is only a remote chance of a UFL claim, or where future income is expected to exceed decommissioning costs but this cannot be guaranteed, there are also options to defer returns, of to file simplified returns, which could be considered. One would need to carefully balance the cost of reconstructing returns if necessary in the future against the ongoing administrative saving. Industry has in the past discussed the possibility of an annual return but we believe part of the reason this was not persued was the fact that returns are easier to complete on a timely basis.
PRT Compliance going forward
It is also worth mentioning companies will effectively have the option to take additional time in preparing their PRT expenditure claims in future, thereby avoiding the tight deadlines for submission of the PRT1 and PRT6 returns. It is of course good housekeeping to make claims on a current basis, but a delay of a few weeks may help improve the compliance process for some companies, with no cash flow impact. There is also an option to move to annual expenditure claims, although this must be done on a field group basis.
CW Energy LLP
April 2016