What is Petroleum Revenue Tax (PRT)?
Petroleum Revenue Tax (PRT) is a tax applied to the profits generated from extracting oil and gas within the United Kingdom’s continental shelf. It was introduced by the Finance Act 1975 with the aim of ensuring that a fair share of the profits from the country’s natural resources goes to the public coffer. PRT was particularly significant during periods when oil prices were high, ensuring increased government revenues during those times. Although PRT was abolished for new fields in 1993, it still applies to profits from fields that were developed before this date.
Examples of Petroleum Revenue Tax (PRT):
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Brownfield Sites: For older fields developed before 16 March 1993, companies must still account for PRT on the profits they generate. For example, Field A, developed in 1985, continues to incur PRT on its profits.
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PRT Reliefs: Companies may claim various reliefs such as expenditure relief on capital costs (e.g., drilling new wells), which reduce the overall PRT liability. If Company B drills a new well in a pre-1993 field, they can deduct these costs from their PRT calculation.
Frequently Asked Questions (FAQ) about Petroleum Revenue Tax (PRT):
1. Is PRT still applicable on all oil and gas fields in the UK?
- No, PRT only applies to fields that were developed before 16 March 1993. Newer fields are exempt from PRT due to legislative changes.
2. What is the current PRT rate?
- The current rate for PRT is 0%, effectively meaning that no PRT is currently being collected, although its framework remains in place for potential future changes.
3. Can companies reclaim PRT costs?
- Yes, companies can reclaim PRT costs through various reliefs such as expenditure on capital and certain operational costs related to the development of pre-1993 fields.
4. How does PRT affect the profitability of oil companies?
- PRT historically affected profitability by reducing net profit due to tax liabilities on oil and gas extraction profits. However, since it stands at 0%, it presently does not affect profits directly.
5. Why was PRT initially introduced?
- PRT was introduced to ensure that the UK government could gain a fair share of profits from the extraction of its natural resources, particularly during periods of high oil prices.
Related Terms
1. Royalty[Importance of energy royalties]
Royalties are payments made to the government by companies for extracting natural resources like oil and gas. They ensure public share from private resource utilization.
2. Tax Allowance
Tax allowances are permissible deductions from taxable income, yielding a reduced tax liability. In the context of PRT, these might include expenditure reliefs.
3. Capital Expenditure[Link to accounting capital expenditures definition]
Capital expenditure refers to the funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment. These expenditures are often deductible under PRT.
4. Supplementary Charge
This is an additional charge on profits from oil and gas extraction, introduced in the UK tax system. It differs from PRT but exists within the same fiscal structure.
Online References
Suggested Books for Further Studies
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“Petroleum Revenue Management: An Introductory Guide” by César E. Moura
- Offers insights into managing revenues from petroleum, including taxation aspects such as PRT.
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“Oil and Gas Law in the UK” by Simon Wenban-Smith
- A comprehensive book dealing with the legal frame of the UK’s oil and gas sector, including tax considerations such as PRT.
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“International Petroleum Fiscal Systems and Production Sharing Contracts” by Daniel Johnston
- Detailed exploration of various international fiscal systems, including discussions on natural resource taxation like PRT.
Accounting Basics: “Petroleum Revenue Tax” Fundamentals Quiz
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