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 accounting profits of such companies are in general 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; under certain circumstances 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 carry-back provisions for losses generated by decommissioning costs; and any profits are taxed at the special 30% RF rate.
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