UK oil and gas tax regime
As the UK’s oil and gas industry has developed over the last 40 years, successive governments have developed a tax regime designed to ensure that the nation receives a fair share of the profits from the exploitation of its oil and gas resources.
At the same time, the regime aims to support maximising the economic recovery of the UK’s remaining hydrocarbon resources. The fiscal regime which currently applies to oil and gas extractive activities comprised three separate taxes: Petroleum Revenue Tax (PRT), Ring Fence Corporation Tax (RFCT) and the Supplementary Charge (SC).
HMRC produce an Oil Taxation Manual which provides an overview of the law and practice for the oil fiscal regime, in particular for Petroleum Revenue Tax, Ring Fence Corporation Tax and the Supplementary Charge.
Read more details on the UK oil and gas tax and legal regime.
UK Mining and Quarrying Tax Regime
Mining and quarrying companies pay corporation tax (CT) on their profits at the standard rate, unlike profits from oil and gas extraction, which are subject to Ring Fence CT regime. Profits from upstream and downstream activities are not separated, and such companies pay a single amount of CT on the profits arising from all their activities. It is therefore not possible to say how much of the taxes paid by the companies whose tax payments are reported here related to their extractive activities nor what the total of such taxes was (and therefore what proportion of the total is covered by this report).
Companies based in the UK have to pay CT on all their taxable profits, wherever in the world those profits originate, although double taxation relief is available where appropriate to avoid the same profits being taxed twice. Companies not based in the UK, but with branches operating in the UK, have to pay CT on taxable profits arising from their UK activities. CT payments by mining and quarrying companies are included in the scope of the UK EITI. The figures reported are for total CT and include tax on both upstream and downstream activities. Corporation tax is paid by a small number of larger companies whose activities are primarily downstream.
Capital allowances are a feature of business taxation in the UK and apply to the mainstream CT regime (as well as to income tax). For CT purposes, the general rule is that capital expenditure is not allowed as a deduction for tax purposes. This means that profits chargeable to CT cannot be reduced by depreciation or similar expenses. The capital allowance regime exists to provide some relief for capital expenditure incurred. The main allowance which is commonly relevant for companies carrying on mining and quarrying activities is Mineral Extraction Allowance (MEA).
Research and Development Expenditure Credit (RDEC) is a tax credit available to companies operating in all sectors. It is generated by spend on research and development, and is claimed as a tax credit. There are a number of ways in which a company can receive payment of their RDEC claim, including offsetting against another of its tax liabilities and receiving a cash repayment. More information on RDEC can be found in the HMRC guidance and statistics on RDEC . For EITI reporting purposes, tax payments/repayments are reported exclusive of any adjustment for RDEC.
There are several other payment streams, such as the Aggregates Levy, which involve payments from extractive companies to the Exchequer. These are outside the scope of EITI as they are indirect taxes not direct taxes. They are documented by ONS in its annual publications on environmental accounts and environmental taxes.
Read more detailed information on the UK mining and quarrying tax and legal regime.