Although the main rate of corporation tax has been set at 25% from 1 April 2023 (an increase of 6% from the pre-1 April 2023 rate), the ring fence Corporation Tax rate applicable to upstream oil and gas profits remains at 30%.
Corporation Tax is levied on the profits of all companies carrying on business in the UK. For those carrying on exploration and production (E&P) activities (excluding such activities if they relate to supplying services to the E&P companies) in the UK and the UK Continental Shelf, separate rules known as the ring fence rules (RF) apply.
The book profits of such companies are adjusted to give immediate 100% relief for most capital expenditure; trading RF losses carried forward can be uplifted by 10% for up to a maximum of 10 periods; capital gains can generally be exempted, provided the proceeds of sale are reinvested in the UK E&P business; there are tight transfer pricing controls; losses and relief from other activities cannot be used to reduce the RF tax payable; there are generous loss carryback provisions for losses generated by decommissioning costs; and any profits are taxed at the special 30% rate.
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