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Petroleum Revenue Tax

Volume 124: debated on Wednesday 16 December 1987

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To ask the Chancellor of the Exchequer if he intends to introduce legislation to amend the rules for the claiming and allowance of petroleum revenue tax relief for field expenditure incurred by oil companies before the end of a chargeable period where the special safeguard relief provision reduces or cancels petroleum revenue tax payable.

No. I asked the Inland Revenue to carry out a review of the interaction between the timing of claims for PRT expenditure relief and the special safeguard relief which can reduce or cancel a company's PRT liability during a number of chargeable periods once a field reaches payback (the net profit period as defined in section 111 of the Finance Act 1981). In respect of these periods it can be advantageous for a company not to claim relief for field expenditure in time for it to be allowed in the assessment for the chargeable period in which it was incurred. The expenditure is then available to be claimed against PRT liability for a later chargeable period. The safeguard relief was introduced as a special overriding relief designed to ensure that PRT—calculated after taking account of all other available reliefs and allowances—does not reduce a participator's return on capital in any chargeable period (up to a prescribed time limit) to 15 per cent. or less. It was not originally intended that further benefit should be available by deferring field expenditure claims so that expenditure incurred before the end of a chargeable period where PRT is reduced or cancelled by safeguard is claimed and allowed against profits of a later chargeable period.Nevertheless, the Government have decided, in the light of representations received during the review and in the current situation in the oil market, not to bring forward legislation in next year's Finance Bill to prevent extra relief from being obtained by means of deferring expenditure claims. The Inland Revenue has a choice over the timing of assessments which could also be exercised to counteract the benefit of deferring expenditure claims, but it will not use this power in these special circumstances to defer assessments for periods from payback where safeguard relief reduces or cancels liability. This decision in relation to safeguard does not have any application to the timing of assessments in other circumstances.