PART IU.K. PETROLEUM REVENUE TAX

1 Petroleum revenue tax.U.K.

(1)A tax, to be known as petroleum revenue tax, shall be charged in accordance with this Part of this Act in respect of profits from oil won under the authority of a licence granted under either [F1Part I of the Petroleum Act 1998] or the M1Petroleum (Production) Act (Northern Ireland) 1964; and in this Part of this Act “oil” means any substance so won or capable of being so won other than methane gas won in the course of operations for making and keeping mines safe.

(2)For each oil field [F2which is a taxable field] the tax shall, in the case of each participator, be charged at the rate of [F3[F450] per cent.] on the assessable profit accruing to him in any chargeable period from that field, as reduced under section 7 of this Act by any allowable losses and under section 8 of this Act by reference to his share, if any, of the oil allowance for that period, subject however to the limit imposed in his case by section 9 of this Act.

(3)In relation to any oil field—

(a)the first chargeable period is the period ending at the end of the critical half year (including an unlimited time prior to the beginning of that half year); and

(b)each subsequent half year is a chargeable period.

(4)In this section—

• “the critical half year”, in relation to an oil field, means the first half year ending after 12th November 1974 at the end of which the total amount of oil ever won and saved from the field exceeds 1,000 [F5metric tonnes] (counting [F51,100 cubic metres] of gas at a temperature of 15 degrees centigrade and pressure of one atmosphere as equivalent to one [F5metric tonne]);

• “half year” means a period of six months ending at the end of June or December.

(5)Schedule 1 to this Act shall have effect with respect to the determination of oil fields, and Schedule 2 to this Act shall have effect with respect to the management and collection of the tax; and this Part of this Act shall have effect subject to the further provisions in Schedule 3 to this Act and, in connection with certain gas sold to the British Gas Corporation, to section 10 of this Act.

2 Assessable profits and allowable losses.U.K.

(1)For the purposes of the tax the assessable profit or allowable loss accruing to a participator in any chargeable period from an oil field shall be computed in accordance with the following provisions of this section.

(2)The assessable profit or allowable loss so accruing in the period is the difference (if any) between the sum of the positive amounts for the period and the sum of the negative amounts for the period; and that difference (if any) is an assessable profit if the sum of the positive amounts is greater than the sum of the negative amounts, and is otherwise an allowable loss.

(3)For the period—

(a)the positive amounts for the purposes of this section are the following (as defined in this section), namely the gross profit (if any) accruing to the participator in the period, his licence credit (if any) for the period, and any amount to be credited to him for the period in respect of expenditure; and

(b)the negative amounts for those purposes are the following (as so defined) namely the gross loss (if any) so accruing, his licence debit (if any) for the period, and any amount to be debited to him for the period in respect of expenditure.

(4)[F6For the purposes of the tax (including advance petroleum revenue tax)] the gross profit or loss (if any) accruing to the participator in the period is the difference (if any) between—

(a)the aggregate of the amounts mentioned in subsection (5) below; and

(b)one-half of the market value, [F7on the last business day] of the preceding chargeable period, of so much of his share of oil won from the field as he had [F8at the end of that period] either—

(i)not disposed of and not relevantly appropriated; or

(ii)disposed of but not delivered,

and the difference (if any) is a gross profit if the said aggregate is greater than one-half of the said market value, and is otherwise a gross loss.

(5)[F9Subject to [F10subsections (5A) and (5B)] below] the amounts referred to in subsection (4)(a) above are—

(a)the price received or receivable for so much of any oil won from the field and disposed of by him crude in sales at arm’s length as was delivered by him in the period (excluding oil delivered before 13th November 1974);

(b)the aggregate market value, ascertained in accordance with Schedule 3 to this Act, of so much of any oil [F11(not being light gases)] so won and disposed of by him crude otherwise than in sales at arm’s length as was delivered by him in the period (excluding oil delivered before 13th November 1974);

(c)the aggregate market value, ascertained in accordance with Schedule 3 to this Act, of so much of any oil [F11(not being light gases)] so won as was relevantly appropriated by him in the period without being disposed of (excluding oil so appropriated before 13th November 1974); and

[F12(ca)the market value, ascertained in accordance with paragraph 3A of Schedule 3 to this Act, of so much of any light gases so won and disposed of by him otherwise than in sales at arm’s length as was delivered by him in the period; and

(cb)the market value, ascertained in accordance with paragraph 3A of Schedule 3 to this Act, of so much of any light gases so won as was relevantly appropriated by him in the period without being disposed of; and]

(d)one-half of the market value, [F13on the last business day] of the period, of so much of his share of oil so won as he had [F8at the end of that period] either—

(i)not disposed of and not relevantly appropriated; or

(ii)disposed of but not delivered [F14and]

[F15(e)the excess of the nominated proceeds for that period, as defined in section 61 of the Finance Act 1987].

[F16(5A)In any case where [F17oil] is disposed of in a sale at arm’s length and the terms of the contract are such that the seller is required to transport the [F18oil] from a place on land in the United Kingdom [F19or another country[F20, or from its place of extraction (where that is in the territorial sea of the United Kingdom or a designated area),] for delivery at another place in or] outside the United Kingdom or to meet some or all of the costs of or incidental to its transportation from and to such places then, for the purposes of this Part of this Act—

(a)the price received or receivable for the [F18oil] shall be deemed to be that for which it would have been sold, and

(b)the [F18oil] shall be deemed to be delivered at the time it would have been delivered,

if the terms of the contract [F21did not require the seller to meet any such costs as are mentioned above but did require the [F18oil] to be delivered—

(i)in the case of [F18oil] extracted in the United Kingdom, at the place of extraction; or

(ii)in the case of [F18oil] extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom [F22or, in the case of oil first landed in another country, at the place in that or any other country]at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.]]

[F23(5B)The Board may by regulations make provision for the purposes of subsection (5)(a) to (c) for determining to which fields and in what proportions blended oil to which subsection (5C) applies is attributable.

(5C)This subsection applies to blended oil within the meaning of section 63(1A) of the Finance Act 1987 (other than light gases) which—

(a)is not gaseous at a temperature of 15 degrees Centigrade and a pressure of one atmosphere, and

(b)is not normally disposed of crude by deliveries in quantities of 25,000 metric tonnes or less.

(5D)Regulations under subsection (5B)—

(a)may apply generally or only to specified cases or circumstances,

(b)may make different provision for different cases or circumstances,

(c)may make incidental, consequential, or transitional provision,

(d)shall be made by statutory instrument, and

(e)may not be made unless a draft has been laid before and approved by resolution of the House of Commons.]

(6)The participator’s licence debit or credit (if any) for the period is the difference (if any) between—

(a)the sum of the amounts mentioned in subsection (7) below; and

(b)the sum of—

(i)the amount taken into account under paragraph (a) of that subsection in computing his licence debit or credit for the preceding chargeable period; and

(ii)the amount of any royalty repaid to the participator in the period in respect of the field;

and that difference (if any) is a licence debit if the sum mentioned in paragraph (a) above is greater than the sum mentioned in paragraph (b) above, and is otherwise a licence credit.

(7)The amounts referred to in subsection (6)(a) above are—

(a)the amount shown in the return for the period made under paragraph 2 of Schedule 2 to this Act as the amount of royalty payable for the period in respect of the participator’s share of oil won from the field;

(b)the amount of royalty paid in the period in respect of that share; and

(c)any amount paid in the period in respect of any periodic payment payable to the Secretary of State under any relevant licence otherwise than by way of royalty.

(8)The amount (if any) to be debited or credited to the participator for the period in respect of expenditure is the difference (if any) between—

(a)the sum of the amounts mentioned in subsection (9) below; and

(b)subject to subsection (10) below, any amount taken into account under paragraph (a) of the said subsection (9) in computing the assessable profit or allowable loss accruing to the participator in the last but one preceding chargeable period;

and that difference (if any) is an amount to be debited as aforesaid if the sum mentioned in paragraph (a) above is greater than the amount mentioned in paragraph (b) above, and is otherwise an amount to be credited as aforesaid.

(9)[F24Subject to section 192 of the Finance Act 1993] the amounts referred to in subsection (8)(a) above are—

(a)subject to subsection (11) below, an amount equal to 5 per cent. of the aggregate of—

(i)the sum of the amounts which, in the participator’s return under paragraph 2 of Schedule 2 to this Act for the period, are, in the case of deliveries falling within sub-paragraph (2)(a) of that paragraph, stated to be the price received or receivable for the oil F25. . ., its market value [F26at the material time] [F27as determined in accordance with Schedule 3 to this Act for each of the deliveries] [F28or (in the case of light gases) its market value as determined in accordance with paragraph 3A of [F29that Schedule], as the case may require]; and

(ii)the sum of the amounts which, in that return, are, in the case of appropriations falling within sub-paragraph (2)(b) of that paragraph, stated to be the market value of the oil [F26at the material time] [F30as determined in accordance with Schedule 3 to this Act for each of the appropriations] [F31or (in the case of light gases) the market value as determined in accordance with paragraph 3A of [F32that Schedule]];

(b)the participator’s share, as determined on a claim under Schedule 5 to this Act, of the aggregate of—

(i)any expenditure allowable under section 3 or 4 of this Act for the field which has been allowed on such a claim before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field; and

(ii)an amount equal to [F3335 per cent.] of so much of that expenditure as has been so allowed on such a claim as qualifying for supplement under this sub-paragraph by virtue of subsection (5) of the said section 3,

so far as that share has not been taken into account in any previous assessment to tax or determination;

(c)the aggregate of—

(i)any expenditure allowable in the case of the participator under section 3 or 4 of this Act which has, on a claim made by him under Schedule 6 to this Act, been allowed before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field; and

(ii)an amount equal to [F3335 per cent.] of so much of that expenditure as has been so allowed on such a claim as qualifying for supplement under this sub-paragraph by virtue of subsection (5) of the said section 3,

so far as that expenditure and amount have not been taken into account in any previous assessment to tax or determination;

(d)any abortive exploration expenditure allowable in the case of the participator under section 5 of this Act which on a claim made by him under Schedule 7 to this Act has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination; and

(e)any unrelievable field losses allowable in the case of the participator under section 6 of this Act which on a claim made by him under Schedule 8 to this Act have been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as those losses have not been taken into account in any previous assessment to tax or determination [F34; and]

[F35(f)any exploration and appraisal expenditure allowable in the case of the participator under section 5A of this Act which, on a claim made by him under Schedule 7 to this Act, has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination][F36; and]

[F37(g)any research expenditure allowable in the case of the participator under section 5B of this Act which, on a claim made by him under Schedule 7 to this Act, has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination.]

(10)If, for the period, the expenditure falling within paragraph (b)(i) or (c)(i) of subsection (9) above includes an amount of expenditure (“the relevant amount”) incurred in the preceding chargeable period, then—

(a)the amount which would otherwise be taken into account under subsection (8)(b) above for the first-mentioned period shall be increased by the smaller of the following amounts, namely the relevant amount and the amount (if any) taken into account under paragraph (a) of subsection (9) above in computing the assessable profit or allowable loss accruing to the participator in the preceding chargeable period; and

(b)the amount which would otherwise be taken into account under subsection (8)(b) above for the chargeable period following the first-mentioned chargeable period shall be reduced by an amount equal to that increase.

(11)If, for the period, the expenditure falling within paragraph (b)(i) or (c)(i) of subsection (9) above includes an amount of expenditure incurred in the period, the amount mentioned in paragraph (a) of that subsection shall be reduced by that amount.

3 Allowance of expenditure (other than expenditure on long-term assets and abortive exploration expenditure). U.K.

(1)Subject to the provisions of this section and Schedules 4, 5 and 6 to this Act, the expenditure allowable under this section for any oil field is any expenditure (whether or not of a capital nature) which, not being expenditure to which section 4 of this Act applies, is incurred by a person at or before the time when he is a participator in the field to the extent [F38subject to subsection (7) below] that it is incurred for one or more of the following purposes, namely—

(a)searching for oil anywhere within the area of the field as subsequently determined under Schedule 1 to this Act or not more than 5,000 metres beyond the boundary of that area;

(b)making to the Secretary of State any payment under or for the purpose of obtaining a relevant licence, not being a payment by way of royalty or other periodic payment;

(c)ascertaining (whether before or after the determination of the field under Schedule 1 to this Act) the extent or characteristics of any oil-bearing area wholly or partly included in the field, or what the reserves of oil of any such oil-bearing area are;

(d)winning oil from the field;

(e)measuring the quantity of oil won or to be won from the field;

(f)in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, transporting it [F39(i)] to the place where it is first landed in the United Kingdom [F40[F41or

(ii)to the place in the United Kingdom or, in the case of oil first landed in another country, to the place in that or any other country (other than the United Kingdom)]

at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction];

(g)the initial treatment or initial storage of oil won from the field;

(h)disposing of any oil won from the field which is disposed of crude in sales at arm’s length;

F42[(hh)obtaining an abandonment guarantee, as defined in section 104 of the Finance Act 1991]

F43F44[(i)closing down, decommissioning, abandoning or wholly or partially dismantling or removing any qualifying asset;

(j)carrying out qualifying restoration work consequential upon the closing down of the field or any part of it.]

[(1A)In this section “qualifying asset” has the same meaning as in the Oil Taxation Act 1983; and, in the case of a qualifying asset which was leased or hired, the reference in subsection (1)(i) above to decommissioning includes a reference to carrying out any restoration or similar work which is required to be carried out to comply with the terms of the contract of lease or hire.

(1B)In subsection (1)(j) above “qualifying restoration work”, in relation to a participator in an oil field, means—

(a)restoring (including landscaping) land on which a qualifying asset is or was situated; or

(b)restoring the seabed (including the subsoil thereof) on which a qualifying asset is or was situated.]

[F45(1C)In any case where—

(a)any expenditure incurred by a participator in a taxable field would, apart from this subsection, be allowable for the field under subsection (1)(i) or (j) above, and

(b)the qualifying asset that is relevant to the incurring of that expenditure has at some time been used otherwise than in connection with the field,

only the relevant portion of the expenditure is allowable for the field under subsection (1)(i) or (j) above.

(1D)In subsection (1C) above “the relevant portion” of the expenditure is the portion of the expenditure that it is just and reasonable to apportion to use of the asset that is use in connection with the field.

(1E)Subsections (1C) and (1D) above have effect subject to the transitional provisions in section 102(5) to (11) of the Finance Act 2001.]

(2)Subject to the following provisions of this section and Schedules 4, 5 and 6 to this Act, where any amount is F46... [F47under section 77 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA 2005”)] [F48or section 77 of the Corporation Tax Act 2009] (statutory redundancy payments) allowable as a deduction in computing for any accounting period the profits or losses of the relevant trade carried on by a person who was in that period a participator in an oil field, or would be so allowable under F49... [F50that section] if it were not otherwise so allowable, then that amount F51... shall be expenditure allowable under this section for that field.

In this subsection “the relevant trade”, in relation to a participator in an oil field, means the separate trade which by virtue of subsection (1) of section [F52492 of the Taxes Act] [F53or by virtue of section 16 of ITTOIA 2005] consists of activities carried on by him that fall within paragraph (a) or (b) of that subsection [F54or within the definition of “oil-related activities” in section 16(2) of ITTOIA 2005] or which would have so consisted if that subsection [F55or section] had additionally had effect as regards all past chargeable periods (within the meaning of the Taxes Acts).

(3)Expenditure is not allowable under this section for any oil field if, or to the extent that, it has been allowed under Schedule 5 or 6 to this Act for any other oil field or has been allowed under Schedule 7 to this Act in connection with any oil field [F56but where expenditure allowable under section 5A [F57or section 5B] of this Act has been allowed on a claim under Schedule 7 to this Act, nothing in this subsection shall prevent a claim being made for an allowance under this section in respect of the same expenditure unless the person making the claim is the participator who made the claim under that Schedule].

(4)The expenditure allowable under this section for any oil field does not include—

(a)expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit; or

(b)the cost of acquiring any land or interest in land, other than the cost of making to the Secretary of State any payment falling within subsection (1)(b) above; or

(c)the cost of acquiring or erecting any building or structure on land, except—

(i)a structure to be subsequently placed on the sea bed F58. . .; or

(ii)a building or structure used or to be used wholly in the process of winning oil from strata in or under land or of measuring the quantity of oil won or to be won from such strata; or

(iii)a building or structure used or to be used for initial treatment or initial storage of oil; or

[F59(iv)a building or structure used or to be used for transporting such oil as is mentioned in subsection (1)(f) above from the place where it is first landed [F60to the place in the United Kingdom or, in the case of oil first landed in another country, to the place in that or any other country (other than the United Kingdom)] at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction; or]

(d)any expenditure wholly or partly depending on or determined by reference to the quantity, value or proceeds of, or the profits from, oil won from the field; . . . F61

(e)any payment made for the purpose of obtaining a direct or indirect interest in oil won or to be won from the field, other than a payment made to the Secretary of State; [F62or]

[F63(f)any payment made in pursuance of a notice under paragraph 4 of Schedule 15 to the Finance Act 1973 (provisions supplementing the territorial extension of charge to tax under section 38 of that Act);]

but nothing in paragraph (e) above shall be taken to apply to a payment made by a participator in pursuance of a contract whereby expenditure incurred for any of the purposes mentioned in subsection (1) above is to be shared between that participator and any of the other participators in the field.

(5)[F64Subject to subsection (5A) below] expenditure allowable under this section for an oil field qualifies for supplement under section 2(9)(b)(ii) or (c)(ii) of this Act if and to the extent that it is incurred for one or more of the following purposes, namely—

(a)bringing about the commencement of the winning of oil from the field or the commencement of the transporting of oil won from it to the United Kingdom [F65or another country];

(b)ascertaining (whether before or after the determination of the field under Schedule 1 to the Act) any of the matters mentioned in subsection (1)(c) above;

(c)carrying out works for, or acquiring an asset or an interest in an asset to be used for the purpose of, substantially improving the rate at which oil can be won or transported to the United Kingdom [F65or another country] from the field, or preventing or substantially reducing a decline in that rate; or

(d)providing any installation for the initial treatment or initial storage of oil won from the field;

but expenditure incurred in hiring an asset shall not so qualify unless the asset is used in carrying out works for a purpose mentioned in paragraph (a), (b) or (c) above or works for the provision of any such installation as is mentioned in paragraph (d) above.

[F66(5A)Where expenditure incurred in relation to an asset is incurred—

(a)in part for one of the purposes specified in subsection (5) above (or for what would be one of those purposes if section 10(2) below were disregarded), and

(b)in part for the purpose of enabling the asset to be used in a way giving rise to tariff receipts within the meaning of the Oil Taxation Act 1983,

then, to the extent that the expenditure is incurred for the purpose mentioned in paragraph (b) above, it shall be treated for the purposes of this Part of this Act as incurred for one of the purposes specified in subsection (5) above.]

F67[(5B)Expenditure incurred by a participator in an oil field shall be taken to be incurred for the purpose mentioned in paragraph (hh) of subsection (1) above if, and only if,—

(a)it consists of fees, commission or incidental costs incurred wholly and exclusively for the purposes of obtaining an abandonment guarantee; and

(b)the abandonment guarantee is obtained in order to comply with a term of a relevant agreement relating to that field under which the participator is required to provide security (whether or not specifically in the form of an abandonment guarantee) in respect of his liabilities to contribute to field abandonment costs;

and expressions used in this subsection shall be construed in accordance with section 104 of the Finance Act 1991.]

(6)[F68Without prejudice to any apportionment under [F69subsections (1C) and (1D)] above] for the purposes of subsections (1) and (5) above [F68other than paragraph (hh) of subsection (1)] expenditure incurred partly for one or more of the purposes there mentioned and partly not shall [F64subject to subsection (7) below] be apportioned in such manner as is just and reasonable [F70and where, in the case of oil won as mentioned in paragraph (f) of subsection (1) above, expenditure is incurred in transporting—.

(a)oil first landed in the United Kingdom to a place in the United Kingdom which is not the nearest place referred to in sub-paragraph (ii) of that paragraph, or

(b)oil first landed in another country to a place in that or any other country (other than the United Kingdom) which is not the nearest place so referred to, so much of that expenditure as does not exceed what would have been the expenditure incurred in transporting it to that nearest place shall be regarded as falling within the said paragraph (f).]

[F66(7)In any case where—

(a)expenditure which is incurred by any person as mentioned in subsection (6) above is so incurred in connection with a long-term asset, and

(b)the long-term asset gives rise to receipts which, for the purposes of the Oil Taxation Act 1983, are tariff receipts of that person attributable to the field for which any of that expenditure is so allowable,

then, so far as relates to that field, in making in accordance with subsection (6) above any apportionment for the purposes of either or both of subsections (1) and (5) above, the whole of the relevant expenditure shall be apportioned to one or more of the purposes mentioned in that subsection or, as the case may be, those subsections.

(8)In subsection (7) above—

(a)“long-term asset” means an asset whose useful life continues after the end of the claim period for which a claim is first made for an allowance in respect of expenditure incurred in connection with the asset; and

(b)“relevant expenditure” means that portion of the expenditure in connection with the asset which is reasonably attributable to the use of the asset which gives rise to the receipts referred to in subsection (7)(b) above.]

4 Allowance of expenditure on long-term assets. U.K.

(1)Subject to subsection (13) below [F71and section 1 of the Oil Taxation Act 1983], this section applies to expenditure (whether or not of a capital nature) which is incurred by a person at or before the time when he is a participator in an oil field, being expenditure incurred in acquiring, bringing into existence, or enhancing the value of an asset which is to be or is subsequently used in connection with the field and [F72which, at the end of the first relevant claim period, is or is expected to be a long-term asset as defined in section 3(8) of the Oil Taxation Act 1983]:

(2)The following provisions of this section are subject to Schedules 4, 5 and 6 to this Act.

(3)-(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F73

(5)Subject to the following provisions of this section, a proportion of the expenditure shall be allowable under this section on a claim for the first relevant claim period, and that proportion is . . . F73the proportion which the time during which the asset has been used in [F72connection with the field] in the period between the incurring of the expenditure or the asset’s first use in [F72connection with the field] (whichever is later) and the end of the first relevant claim period bears to the time between the incurring of the expenditure and the date when the asset’s useful life is reasonably likely to end:

(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F73

(7)[F72For each claim period subsequent to the first relevant claim period and] up to and including that in which use of the asset in connection with the field permanently ceases, the proportion of the expenditure allowable under this section for the relevant period shall be computed by applying the provisions of [F72subsection (5)] above with the omission of the words “on a claim” (wherever occurring) and the substitution of references to the relevant period for references to the first relevant claim period.

For the purposes of this subsection “the relevant period”, in relation to a claim period, means the period consisting of that claim period and each earlier claim period back to and including that in which the expenditure was incurred.

(8)If, as computed under subsection (7) above for any claim period, the proportion of the expenditure allowable for the relevant period exceeds the amount thereof which (taking into account any previous adjustments made under the following subsection) has been allowed on claims made for earlier claim periods falling within the relevant period, the excess shall be allowable under this section on a claim for that claim period.

(9)If, as computed under subsection (7) above for any claim period, the proportion of the expenditure allowable for the relevant period is exceeded by the amount thereof which (taking into account any previous adjustments made under this subsection) has been allowed on claims made for earlier claim periods falling within the relevant period, the total amount of expenditure allowable under this and the preceding section on a claim for the first-mentioned claim period shall be reduced by an amount equal to the excess.

(10)Subsections (3) to (5) of section 3 of this Act shall apply for the purposes of this section as they apply for the purposes of that section; and where in accordance with subsection (9) above the total amount of the expenditure allowable under this and the preceding section on a claim for any claim period is reduced, the amount falling to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act by reference to that expenditure shall be reduced by a proportion equal to the proportion by which the total amount of that expenditure is so reduced.

(11)For the purposes of [F72subsection (5) above (including that subsection as it applies] under subsection (7) above) an asset which is throughout any period of time simultaneously used partly in connection with the field and partly otherwise shall be treated as being used in connection with the field for a proportion of that period equal to the proportion which the extent of its use in the period in that connection bears to the extent of its use in the period in that connection and otherwise.

(12)For the purposes of this section—

(a)the asset is a brought-in asset if, between the time when it was acquired or brought into existence and its first use in connection with the field, the asset was used otherwise than in connection with the field; and

(b)“the first relevant claim period”—

(i)in the case of expenditure incurred in acquiring or bringing into existence a brought-in asset, means the claim period in which the asset was first used in connection with the field; and

(ii)in the case of any other expenditure, means the claim period in which the expenditure was incurred.

(13)The preceding provisions of this section, and any other provisions in this Part of this Act as to which it is provided that this subsection applies, shall, with any necessary modifications, apply in relation to expenditure incurred by a person in acquiring an interest in an asset, or in bringing into existence an asset in which he is to have an interest, or in enhancing the value of an asset in which he has an interest, as the provisions in question apply in relation to expenditure incurred by a person in acquiring, bringing into existence, or enhancing the value of an asset, as the case may be.

5 Allowance of abortive exploration expenditure.U.K.

(1)Subject to the following provisions of this section and Schedule 7 to this Act, the abortive exploration expenditure allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) incurred on or after 1st January 1960 [F74and before 16th March 1983] which—

(a)was incurred by that person or, if that person is a company, by that company or a company associated with it in respect of the expenditure; and

(b)was incurred wholly and exclusively for the purpose of searching for oil in the United Kingdom, the territorial sea thereof or a designated area; and

(c)is not, and is unlikely to become, allowable under section 3 or 4 of this Act for any oil field,

but so that any expenditure to which subsection (2) below applies shall not be allowable under this section except to the extent that it falls by virtue of that subsection to be treated as incurred wholly and exclusively for the purpose mentioned in paragraph (b) above.

(2)Where any person has incurred expenditure in acquiring, bringing into existence, or enhancing the value of an asset which is subsequently used by him for the purpose mentioned in paragraph (b) of subsection (1) above, then—

(a)subject to paragraph (b) below, if the useful life of the asset continues after the end of the twelve months beginning with the day on which he acquired the asset or brought it into existence, he shall be treated for the purposes of that subsection as having incurred wholly and exclusively for that purpose a fraction of that expenditure on each day after the expenditure was incurred on which the asset is used by him wholly and exclusively for that purpose, and that fraction is the fraction of which the numerator is 1 and the denominator is the number of days in the period beginning with the day on which he incurred that expenditure and ending with the day on which the asset’s useful life is reasonably likely to end;

(b)if a subsequent disposal of the asset by that person otherwise than to a person connected with him gives rise to the receipt of a sum that falls to be taken into account under subsection (6) below, being a sum not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal, paragraph (a) above shall apply with the substitution, for the reference to the day on which the asset’s useful life is reasonably likely to end, of a reference to the day on which the disposal was made.

Section 4(13) of this Act applies to the preceding provisions of this subsection.

[F75(2A)For the purpose only of determining under paragraph (c) of subsection (1) above whether expenditure is or is likely to become allowable for any oil field, it shall be assumed that any oil field which, apart from this subsection, would be a non-taxable field is or, as the case may be, will be a taxable field and, accordingly, that section 185(4)(e) of the Finance Act 1993 (no expenditure allowable for non-taxable fields) does not apply.]

(3)Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 7 to this Act in connection with any oil field.

(4)Subsection (4) of section 3 of this Act shall apply for the purposes of this section with the following modifications, that is to say—

(a)in paragraph (c) the words from “except” to the end of sub-paragraph (iii) shall be omitted;

(b)paragraph (d) shall be omitted;

(c)in paragraph (e), the reference to oil won or to be won from the field shall be read as a reference to oil won or to be won from any area whatsoever.

(5)Paragraph 2 of Schedule 4 to this Act shall, . . . F76, apply in relation to this section as it applies in relation to sections 3 and 4 of this Act.

(6)Where any expenditure which would otherwise be allowable under this section gives rise to the receipt of any sum (whether or not of a capital nature) by the person who incurred the expenditure or any person connected with him, that expenditure shall for the purposes of this section be reduced by an amount equal to that sum.

(7)For the purposes of this section—

(a)“company” means any body corporate;

(b)section [F77839] of the Taxes Act (connected persons) shall apply; and

(c)a company which is a participator in an oil field is associated with another company in respect of expenditure incurred by the other company if—

(i)throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company; or

(ii)each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself a 51 per cent. subsidiary of any company.

(8)For the purposes of subsection (7)(c) above—

(a)“the relevant period” is the period beginning immediately before the expenditure was incurred and ending with the end of whichever of the following periods ends later, that is to say—

(i)the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

(ii)the chargeable period (for that field) in which the expenditure was incurred,

(or, if they are the same period, with the end of that period); and

(b)section [F77838] of the Taxes Act (subsidiaries) shall apply.

[F785A Allowance of exploration and appraisal expenditure.U.K.

(1)The exploration and appraisal expenditure which, subject to the provisions of this section and Schedule 7 to this Act, is allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) which—

(a)is incurred after 15th March 1983 by that person or, if that person is a company, by that company or a company associated with it in respect of the expenditure; and

[F79(aa)either is incurred before 16th March 1993 or is incurred within the period of two years beginning on that date and is expenditure to which that person or, if that person is a company, that company or a company associated with it in respect of the expenditure, is committed immediately before that date; and]

(b)is so incurred wholly and exclusively for one or more of the purposes specified in subsection (2) below; and

(c)at the time it is so incurred, does not relate to a field for which a development decision has previously been made.

[F80(1A)For the purposes of subsection (1)(aa) above, in respect of expenditure incurred on or after 16th March 1993, a person is to be regarded as committed to that expenditure immediately before that date if—

(a)he has an obligation under an exploration and appraisal contract entered into before that date to incur the expenditure; or

(b)the expenditure is incurred wholly and exclusively for the same purpose as that for which the contract referred to in paragraph (a) above was entered into and is so incurred pursuant to an obligation under an exploration and appraisal contract entered into on or after 16th March 1993 and before 16th June 1993.

(1B)In considering whether a person has at any time such a contractual obligation as is referred to in paragraph (a) or paragraph (b) of subsection (1A) above in respect of any expenditure,

(a)if the contract contains a power (however exercisable) by virtue of which the person concerned, or a company associated with him in respect of the expenditure, is able to bring any contractual obligations to an end, he shall not be regarded as committed to any expenditure which, if the power were to be exercised, would not be incurred; and

(b)if the person concerned (or a company associated with him in respect of the expenditure) has an option (however described) which was not exercised before 16th March 1993 but the exercise of which would increase his expenditure under the contract, he shall not be regarded as committed to any expenditure which would be incurred only as a result of the exercise of the option.

(1C)For the purposes of subsection (1A) above a contract is an exploration and appraisal contract if it is a contract for the provision of any services or other business facilities or assets for any of the purposes specified in subsection (2) below.]

(2)The purposes referred to in [F81subsections (1) to (1C)] above are—

(a)the purpose of searching for oil in [F82the territorial sea of the United Kingdom] or a designated area;

(b)the purpose of ascertaining the extent or characteristics of any oil-bearing area in [F82the territorial sea of the United Kingdom] or a designated area;

(c)the purpose of ascertaining what are the reserves of oil of any such oil-bearing area; and

(d)subject to subsection (3) below, the purpose of making to the Secretary of State any payment under or for the purpose of obtaining a licence (not being a payment by way of royalty or other periodic payment).

[F83(2A)Any reference in subsection (2) above to a designated area does not include a sector which, by virtue of subsection (3)(b) of section 107 of the Finance Act 1980 (transmedian fields), is deemed to be a designated area.]

(3)Expenditure incurred for the purpose mentioned in subsection (2)(d) above is not allowable under this section unless, at the time the allowance is claimed,—

(a)the licence to which the expenditure related has expired or has been determined or revoked; or

(b)part of the licensed area has been surrendered;

and where paragraph (b) above applies only that proportion of the expenditure which corresponds to the proportion of the licensed area which has been surrendered is expenditure falling within subsection (1) above.

(4)Subject to subsection (5) below, subsections (2) and (4) to (8) of section 5 of this Act apply for the purposes of this section as they apply for the purposes of that section.

(5)In the application for the purposes of this section of the provisions of section 5 of this Act referred to in subsection (4) above,—

(a)any reference in subsection (2) of section 5 to the purpose mentioned in subsection (1)(b) of that section shall be construed as a reference to any of the purposes specified in subsection (2) of this section;

(b)the reference in subsection (2)(a) of section 5 to subsection (1) of that section shall be construed as a reference to subsection (1) of this section; and

(c)the reference in subsection (6) of section 5 to a sum received—

[F84(i)includes a reference to a sum received, or treated by virtue of subsection (5A) below as received, from the disposal of oil won in the course of operations carried out for any of the purposes in paragraphs (a) to (c) of subsection (2) of this section; but

(ii)does not include a reference to a sum received for the assignment of any of the rights conferred by a licence or of any interest in a licensed area.]

[F85(5A)Subsection (5B) below applies in any case where—

(a)oil which is won as mentioned in paragraph (c)(i) of subsection (5) above is either disposed of otherwise than in sales at arm’s length or appropriated to refining or to any use except for production purposes of an oil field, and

(b)if that oil had been disposed of in a sale at arm’s length, then, by virtue of section 5(6) of this Act as applied by subsection (5) above, certain expenditure would have been reduced by reference to the receipt of a sum from that disposal.

(5B)Where this subsection applies, the oil concerned shall be treated for the purposes of subsection (5)(c)(i) above and section 5(6) of this Act as having been disposed of for a sum equal to its market value [F86at the material time] [F87determined in accordance with Schedule 3 to this Act for the disposal or appropriation mentioned] in subsection (5A)(a) above and, accordingly, for those purposes—

(a)a sum equal to that market value shall be treated as having been received from that disposal; and

(b)no account shall be taken of any sum actually received from the disposal of any of that oil.

(5C)In the application of Schedule 3 to this Act for the purpose of ascertaining the market value of oil as mentioned in subsection (5B) above,—

F88(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)[F89sub-paragraph (4)] of paragraph 2 shall be omitted; and

(c)any reference in paragraphs 2 and 2A to oil being relevantly appropriated shall be construed as a reference to its being appropriated as mentioned in subsection (5A)(a) above[F90; and

(d)any reference in paragraph 2 to the notional delivery day for the actual oil shall be construed as a reference to the day on which the oil is disposed of or appropriated as mentioned in subsection (5A)(a) above.]]

(6)Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 5, Schedule 6 or Schedule 7 to this Act in connection with any oil field.

(7)For the purposes of subsection (1)(c) above, a development decision is made when—

(a)consent for development is granted to a licensee by the Secretary of State in respect of the whole or part of an oil field; or

(b)a programme of development is served on a licensee or approved by the Secretary of State for the whole or part of an oil field;

and subsections (4) and (5) of section 36 of the Finance Act 1983 (meaning of development etc.) apply in relation to this subsection as they apply in relation to subsections (2) and (3) of that section.

(8)If, at the time when it is incurred, expenditure relates to an area—

(a)which is not then an oil field, but

(b)in respect of which notice of a proposed determination has previously been given under paragraph 2(a) of Schedule 1 to this Act,

that area shall be treated for the purposes of this section as having become an oil field at the time the notice was given unless, when the actual determination is made, the area is not included in an oil field.]

[F915B Allowance of research expenditure.U.K.

(1)Subject to the following provisions of this section and Schedule 7 to this Act, the research expenditure which is allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) which—

(a)is incurred by him on or after 17th March 1987; and

(b)at the expiry of the period of three years from the time at which it was incurred, has not become allowable under section 3 or section 4 of this Act or section 3 of the Oil Taxation Act 1983; and

(c)was not incurred for purposes relating to a particular oil field; and

(d)was not incurred wholly and exclusively for one or more of the purposes which, subject to subsection (2) below, are specified in section 5A(2) of this Act; and

(e)was incurred for the purpose of research of such a description that, if it had been incurred by the participator in relation to a particular field, it would have been allowable for that field under section 3 or section 4 of this Act or section 3 of the Oil Taxation Act 1983; and

(f)was incurred wholly or partly for United Kingdom purposes.

(2)For the purposes only of subsection (1)(d) above, any reference in section 5A(2) of this Act to the territorial sea of the United Kingdom shall be taken to include a reference to the United Kingdom itself.

(3)Where expenditure falling within paragraphs (a) to (e) of subsection (1) above is incurred partly for United Kingdom purposes and partly for other purposes, only such part of the expenditure as it is just and reasonable to apportion to United Kingdom purposes shall be allowable by virtue of this section.

(4)In subsections (1)(f) and (3) above, “United Kingdom purposes” means purposes relating to the United Kingdom, the territorial sea thereof or designated areas, excluding any sector which, by virtue of subsection (3)(b) of section 107 of the Finance Act 1980 (transmedian fields), is deemed to be a designated area.

(5)Expenditure is not allowable under this section if, or to the extent that, it has been allowed under Schedule 5, Schedule 6 or Schedule 7 to this Act for or in connection with an oil field.

(6)To the extent that it is reasonable to assume that expenditure which, apart from this subsection, would be allowable under this section has been incurred for purposes relating to excluded oil, within the meaning of section 10(1) of this Act [F92or for purposes relating to non-taxable fields], that expenditure is not allowable under this section.

(7)Subject to subsection (3) above, subsections (2) and (6) of section 5 of this Act apply for the purposes of this section as they apply for the purposes of that section except that—

(a)any reference in subsection (2) of section 5 to the purpose mentioned in subsection (1)(b) of that section shall be construed as a reference to the purpose referred to in subsection (1)(e) of this section;

(b)the reference in paragraph (a) of subsection (2) to subsection (1) of that section shall be construed as a reference to subsection (1) of this section; and

(c)where any expenditure falls to be apportioned under subsection (3) of this section, any receipt to which it gives rise shall be similarly apportioned in the application of subsection (6) of section 5.

(8)Paragraph 2 of Schedule 4 to this Act applies in relation to this section as it applies in relation to sections 3 and 4 of this Act.]

6 Allowance of unrelievable loss from abandoned field.U.K.

[F93(1)In the case of a participator in an oil field, an allowable unrelievable field loss is the unrelievable portion of an allowable loss falling within subsection (1B) below.

(1A)Subsection (1) above is subject to subsections (5) to (9) below and Schedule 8 to this Act [F94and paragraph 5 of Schedule 20A to the Finance Act 1993].

(1B)An allowable loss falls within this subsection if—

(a)the loss accrued in any chargeable period from another field (“the abandoned field”),

(b)the person to whom the loss accrued is—

(i)the participator, or

(ii)if the participator is a company, a company associated with the participator in respect of the loss (see subsection (3) below),

(c)the loss accrued to that person as a participator in the abandoned field, and

(d)the winning of oil from the abandoned field has permanently ceased.

(1C)The “unrelievable portion” of an allowable loss falling within subsection (1B) above is so much of that loss as cannot under the provisions of section 7 of this Act be relieved against assessable profits accruing from the abandoned field to the person to whom the loss accrued.

(1D)Subsection (1C) above is subject to Schedule 32 to the Finance Act 2001 (determination of unrelievable portion where Parts 2 and 3 of Schedule 17 to the Finance Act 1980 did not apply to transfer of interest in abandoned field).]

(2)In determining for the purposes of this section whether an allowable loss has accrued as mentioned in [F95subsection (1B) above] from an oil field from which the winning of oil permanently ceased before the total amount of oil ever won and saved from it reached the amount by reference to which the critical half year is defined in section 1(4) of this Act, the first chargeable period for that field shall be taken to have been the period ending at the end of the half year in which the winning of oil from the field so ceased (including an unlimited time prior to the beginning of that half year).

In this subsection “half year” has the same meaning as in section 1 of this Act.

(3)For the purposes of this section—

(a)“company” means any body corporate; and

(b)a company which is a participator in an oil field is associated with another company in respect of an allowable loss which accrued to that other company in a chargeable period from another oil field if—

(i)throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company; or

(ii)each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself a 51 per cent. subsidiary of any company;

and in this section and Schedule 8 to this Act any reference to the winning of oil from an oil field permanently ceasing includes a reference to the permanent cessation of operations for the winning of oil from the field.

(4)For the purposes of subsection (3)(b) above—

(a)the relevant period is the period beginning with the chargeable period in which the allowable loss accrued to the other company referred to in that paragraph and ending with the end of whichever of the following period ends later, that is to say—

(i)the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

(ii)the chargeable period in which the allowable loss accrued,

(or, if they are the same period, with the end of that period); and

(b)section [F96838] of the Taxes Act (subsidiaries) shall apply.

[F97(4A)For the purposes of this section and Schedule 8 to this Act, the winning of oil from an oil field shall not be regarded as having permanently ceased until all the oil wells in the field have been permanently abandoned.]

[F98(5)Subsections (6) to (9) below apply if—

(a)a claim is made for the allowance of an unrelievable field loss; and

(b)the person to whom the loss accrued made a claim or election for the allowance of any expenditure unrelated to that field; and

(c)that claim or election was received by the Board on or after 29th November 1994; and

(d)the whole or a part of the expenditure to which the claim or election relates is allowed and, accordingly, falls to be taken into account under section 2(8)(a) of this Act for a chargeable period (whether beginning before or after 29th November 1994).

(6)Subject to subsection (7) below, where this subsection applies, from the amount which, apart from this subsection, would be the amount of the unrelievable field loss referred to in paragraph (a) of subsection (5) above there shall be deducted an amount equal to so much of any expenditure unrelated to the field as is allowed on a claim or election as mentioned in paragraph (d) of that subsection.

(7)If—

(a)claims are made for the allowance of more than one unrelievable field loss derived from the same abandoned field, and

(b)the person to whom the loss accrued is the same in respect of each of the unrelievable field losses,

subsection (6) above shall have effect as if the deduction referred to in that subsection fell to be made from the aggregate amount of those losses.

(8)Where subsection (7) above applies, the deduction shall be set against the unrelievable field losses in the order in which the claims for the allowance of each of those losses were received by the Board.

(9)In subsections (5) and (6) above, “expenditure unrelated to the field” means—

(a)expenditure allowable under any of sections 5, 5A and 5B of this Act;

(b)expenditure allowable under this section (derived from a different abandoned field); or

(c)expenditure falling within section 65 of the M2Finance Act 1987 which is accepted by the Board as allowable in accordance with Schedule 14 to that Act;

and, in relation to expenditure falling within section 65 of the M3Finance Act 1987, “election” means an election under Part I of Schedule 14 to that Act.]

7 Relief for allowable losses. U.K.

(1)Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field, then, subject to the following provisions of this section, the assessable profit accruing to him from the field in any succeeding chargeable period shall be treated as reduced by the amount of that allowable loss, or by so much of that amount as cannot, under this subsection or on a claim (if made) under subsection (2) below, be relieved against the assessable profit accruing to him from the field in any earlier chargeable period.

(2)Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field, the participator may make a claim requiring that the loss be in the first instance set against any assessable profit which accrued to him from the field in any preceding chargeable period; and the assessable profit which so accrued to him in any such period shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against any assessable profit accruing to him from the field in a later chargeable period.

(3)Where—

(a)the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field; and

(b)the winning of oil from that field has permanently ceased,

then so much of that allowable loss as cannot under subsection (1) or (2) above be relieved against assessable profits accruing to the participator from the field shall be relieved under this subsection by treating the assessable profit accruing to him from the field in any chargeable period as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this section against the assessable profit so accruing to him in a later chargeable period.

8 Oil allowance.U.K.

(1)Subject to the provisions of this section and paragraphs 10 and 11 of Schedule 3 to this Act, where a participator in an oil field would, apart from this section and section 9 of this Act, be chargeable to tax for any chargeable period on an amount (“the said amount”) consisting of the assessable profit accruing to him in the period from the field or that profit as reduced under section 7 of this Act by any allowable losses, then for the purpose of determining his liability, if any, to tax for that period, the said amount shall be treated as reduced or further reduced as follows, that is to say—

(a)if the said amount exceeds the cash equivalent of his share of the oil allowance for the field for that period, to an amount equal to the excess; or

(b)if the said amount does not exceed the cash equivalent of his share of that allowance, to nil.

(2)The oil allowance for an oil field is, for each chargeable period, [F99250,000 metric tonnes], and shall be divided between the participators in shares proportionate to their shares of the oil won and saved from the field during the period.

(3)For the purposes of this section the cash equivalent of a participator’s share of the oil allowance for an oil field for a chargeable period is (subject to subsection (4) below) the amount given by the formula:—

(4)If a participator in an oil field so elects by notice in writing given to the Board at the time when he makes his return under paragraph 2 of Schedule 2 to this Act for a chargeable period, then the cash equivalent of his share of the oil allowance for the field for that period shall be determined under subsection (3) above—

[F100(a)to the extent that his share of that oil allowance does not exceed his share of the oil (other than gas) won and saved from the field in the period, as if—

(i)in computing the gross profit or gross loss accruing to him in the period all amounts relating to gas fell to be disregarded, and

(ii)in the definition of C, for “the oil won and saved” there were substituted “the oil (other than gas) won and saved”; and

(b)to the extent, if any, that his share of that oil allowance exceeds his share of the oil (other than gas) so won and saved, as if—

(i)in computing the gross profit or gross loss so accruing all amounts relating to oil other than gas fell to be disregarded, and

(ii)in the definition of C, for “the oil won and saved” there were substituted “the gas won and saved”.]

(5)For the purposes of this section the amount of the oil allowance for an oil field utilised by a participator in any chargeable period is—

(a)if in his case a reduction is made for that period under subsection (1)(a) above, an amount in [F99metric tonnes] equal to his share of the oil allowance for the field for that period;

(b)if in his case a reduction is made for that period under subsection (1)(b) above, the amount in [F99metric tonnes] arrived at by multiplying his share of the oil allowance for the field for that period (in [F99metric tonnes]) by the fraction of which the numerator is the amount of that reduction and the denominator is the cash equivalent of his share of the said oil allowance;

(c)in any other case, nil.

(6)The total oil allowance for an oil field shall not exceed [F995 million metric tonnes], and accordingly—

(a)for each chargeable period there shall be determined the aggregate of the amounts of the oil allowance for the field utilised by the participators in that period; and

(b)as regards the earliest chargeable period such that the sum of the aggregate determined under paragraph (a) above for that period and the aggregates so determined for each earlier chargeable period would, apart from this subsection, exceed [F995 million metric tonnes], the necessary restriction shall be apportioned between the participators in such manner as may be notified to the Board by the responsible person or, in default of such notification, as may be determined by the Board.

In this subsection “the necessary restriction” means the restriction necessary to secure that the aggregate determined under paragraph (a) above for the chargeable period to which paragraph (b) above applies will, when added to the sum of the aggregates so determined for each earlier chargeable period, produce a total of [F995 million metric tonnes].

(7)For the purposes of this section [F991,100 cubic metres] of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one [F99metric tonne] of oil other than gas.

(8)Any reduction to be made under subsection (1) above shall be made before applying the provisions of section 9 of this Act.

[F1019[F102Limit on amount of tax payable].U.K.

(1)The tax payable by a participator in an oil field for any chargeable period to which this subsection applies shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that period (as defined in this section) exceeds 15 per cent. of his accumulated capital expenditure at the end of that period (as so defined).

(1A)Subsection (1) above applies to—

(a)any chargeable period from the first chargeable period up to and including the period which is the participator’s net profit period for the field for the purposes of section 111 of the Finance Act 1981 or where section 113 of that Act applies, up to and including the earlier of the periods mentioned in subsection (2) of that section; and

(b)any subsequent chargeable period up to such number of periods as is equal to half the number of chargeable periods [F103which are included in paragraph (a) above and in which the amount of oil won and saved from the field exceeds 1,000 metric tonnes] (counting any resulting fraction of a period as a whole period)

[F104and for the purposes of paragraph (b) above 1,100 cubic metres of gas at a temperature of 15 degrees centigrade and pressure of one atmosphere shall be counted as equivalent to one metric tonne].

(2)The adjusted profit of a participator in an oil field for any chargeable period shall be determined as follows—

(a)there shall be ascertained—

(i)the assessable profit (without any reduction under section 7 or 8 of this Act) or allowable loss accruing to him in that period; and

(ii)the total amount taken into account under section 2(9)(b), (c), (d) [F105, (e) [F106(f) and (g)]] of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

(b)if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

(c)if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the difference is his adjusted profit for the period.

(3)The accumulated capital expenditure of a participator in an oil field at the end of any chargeable period is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in that period and all earlier chargeable periods excluding all expenditure so taken into account which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii).

(4)Where a participator has made an election under paragraph 9(1) of Schedule 3 to this Act the amount of any reduction by virtue of this section in the tax payable by him for any chargeable period shall not be greater than it would have been if he had not made any such election and for the purposes of subsection (3) above his accumulated capital expenditure at the end of any chargeable period shall be taken to be what it would have been if he had made no such election.]

[F1079A Operating expenditure incurred while section 9 applies.U.K.

(1)Subsections (2) and (3) below apply where—

(a)operating expenditure is incurred by a participator in an oil field during a chargeable period to which section 9(1) of this Act applies (“the relevant chargeable period”);

(b)a claim for the allowance of the expenditure is made under Schedule 5 or 6 for the claim period which coincides with the relevant chargeable period (“the relevant claim period”); and

(c)the claim is made more than four months after the end of the relevant claim period.

(2)The Board shall not allow the expenditure except to such extent (if any) as they consider necessary to secure that the participator’s overall liability to tax is no greater than it would have been if the claim had been allowed before the Board had made an assessment to tax or a determination on or in relation to the participator in respect of the field for the relevant chargeable period.

(3)Any amounts of oil allowance which, if the claim had been allowed before the Board had made an assessment to tax or a determination on or in relation to the participator in respect of the field for the relevant chargeable period, would not have been utilised by him in that period, or any subsequent chargeable period, shall be disregarded for the purposes of section 8(6) of this Act.

(4)Where—

(a)the participator transfers the whole or part of his interest in the oil field to another person; and

(b)Parts II and III of Schedule 17 to the M4Finance Act 1980 apply to the transfer,

subsections (2) and (3) above shall have effect as if references to the participator included references to that other person.

(5)In this section—

• “acquisition”, in relation to an asset, includes acquisition of an interest in the asset;

• “capital expenditure” means expenditure on the acquisition or construction of an asset which is to be used for any of the following purposes—

  (a)

  for ascertaining the extent or characteristics of any oil-bearing area wholly or partly included in the field, or what the reserves of oil of any such oil-bearing area are;

  (b)

  for winning oil from the field;

  (c)

  for transporting oil won from the field, whether to a place in the United Kingdom or to a place in another country; or

  (d)

  for the initial treatment or initial storage of oil won from the field;

• “operating expenditure” means any expenditure other than capital expenditure.

(6)Where a claim period is a period of twelve months, this section shall have effect as if—

(a)that period were two separate claim periods of six months each;

(b)any claim for that period under Schedule 5 or 6 were two separate claims, one for each of those separate periods; and

(c)the operating expenditure to which that claim relates were apportioned between those separate periods and those separate claims in such manner as may be just and reasonable.]

10 Modification of Part I in connection with certain gas sold to British Gas Corporation.U.K.

(1)In computing under section 2 of this Act the gross profit or loss (if any) accruing to a participator in any chargeable period from an oil field—

(a)any oil consisting of gas sold to the British Gas Corporation under a contract made before the end of June 1975 shall be disregarded; and

(b)if at the end of that chargeable period the participator’s share, exclusive of oil falling within paragraph (a) above or used for production purposes, of the total amount of oil ever won and saved from the field does not exceed 5 per cent. of his share of the total amount of oil so falling which was ever so won and saved, his share of the oil won and saved from the field but not so falling shall also be disregarded;

and in the following provisions of this section any oil which falls to be disregarded under this subsection is referred to as “excluded oil”.

(2)Excluded oil shall be deemed not to be oil for the purposes of the following provisions of this Act, namely section 2(7) and (9), section 3 (except paragraphs (a) to (c) [F108(hh), (i) and (j) of subsection (1) and [F109subsections (1C) and (1D)]]) and section 4 (including, in the case of any expression used in any of those provisions which is defined elsewhere, its definition so far as it has effect for the purpose of that provision); and in computing under section 2 of this Act the licence debit or credit (if any) of a participator in an oil field for any chargeable period, any royalty repaid to him in the period in respect of excluded oil shall be disregarded.

[F110(3)Subsections (3A) to (3H) below apply where, in the case of any taxable field, the oil—

(a)won and saved from the field, or

(b)expected to be won and saved from the field,

includes oil falling within subsection (1)(a) above.

(3A)Any expenditure allowable under section 3 of this Act for the field by virtue of any of paragraphs (a) to (c) of section 3(1) of this Act shall be a proportion of what it would otherwise have been.

(3B)The proportion mentioned in subsection (3A) above is that which, according to estimates submitted to the Secretary of State after the end of June 1975 and approved by him as reasonable, the field’s original reserves of oil exclusive of oil falling within subsection (1)(a) above bear to the field’s original reserves of oil inclusive of oil so falling.

(3C)Until estimates have been submitted and approved for the purpose of subsection (3B) above, the expenditure allowable for the field under section 3 of this Act by virtue of section 3(1)(a), (b) or (c) of this Act shall be deemed to be nil.

(3D)Any expenditure allowable under section 3 of this Act for the field by virtue of section 3(1)(hh) of this Act shall be a portion of what it would otherwise have been.

(3E)That portion is determined in accordance with the following rules—

1.Identify the abandonment guarantee (within the meaning given by section 104 of the Finance Act 1991 (c. 31)) on the obtaining of which the expenditure was incurred.

2.Identify the liabilities covered by the guarantee.

3.Identify which of those liabilities relate to qualifying assets.

4.Identify the portion of the expenditure that it is just and reasonable to apportion to the liabilities identified under rule 3.

5.Identify the qualifying assets to which the liabilities identified under rule 3 relate.

6.Identify the use of those qualifying assets that has been (or is expected to be) non-excluded use.

7.Assume that expenditure is incurred on the provision of those qualifying assets and identify the proportion of the hypothetical expenditure that it would be just and reasonable to apportion to the use of those assets identified under rule 6.

8.The portion mentioned in subsection (3D) above is then determined by multiplying—

(i)the portion identified under rule 4, by

(ii)the proportion (expressed as a fraction) identified under rule 7.

(3F)Any expenditure allowable under section 3 of this Act for the field by virtue of section 3(1)(i) or (j) of this Act shall be a portion of what it would otherwise have been.

(3G)That portion is determined in accordance with the following rules—

1.Identify the qualifying asset that is relevant to the incurring of the expenditure.

2.Identify the use of that qualifying asset that has been non-excluded use.

3.Assume that expenditure is incurred on the provision of that qualifying asset and identify the proportion of the hypothetical expenditure that it would be just and reasonable to apportion to the use of that asset identified under rule 2.

4.The portion mentioned in subsection (3F) above is then determined by multiplying—

(i)the expenditure, by

(ii)the proportion (expressed as a fraction) identified under rule 3.

(3H)In subsections (3E) and (3G) above—

• “non-excluded use” means—

  (a)

  use in connection with the winning and saving of oil, other than excluded oil, from the field, or

  (b)

  use giving rise to receipts that, for the purposes of the Oil Taxation Act 1983 (c. 56), are tariff receipts attributable to a participator in the field;

• “qualifying asset” has the same meaning as it has for the purposes of the Oil Taxation Act 1983 (see section 8 of that Act).]

(4)A return made under paragraph 2 of Schedule 2 to this Act by a participator in an oil field need not, in the case of oil falling within subsection (1)(a) above, state the price received or receivable for the oil.

(5)For the purposes of this section [F1111,100 cubic metres] of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one [F111metric tonne] of oil other than gas.

11 Application of Provisional Collection of Taxes Act 1968.U.K.

Section 1 of the M5Provisional Collection of Taxes Act 1968 shall apply to petroleum revenue tax ; and accordingly, in subsection (1) of that section after the words “income tax” there shall be inserted the words “ petroleum revenue tax ”.

12 Interpretation of Part I.U.K.

(1)In this Part of this Act—

• [F112“business day” has the same meaning as in the Bills of Exchange Act 1882;]

• [F113“calendar month” (where those words are used) means a month of the calendar year;]

• [F112“Category 1 oil” and “Category 2 oil” have the meaning given by paragraph 2(1B) of Schedule 3 to this Act;]

• “chargeable period”, in relation to an oil field, has the meaning given by section 1(3) of this Act;

• “claim period”, in relation to an oil field, has the meaning given by paragraph 1 of Schedule 5 to this Act; “crude”, where the reference is to oil being disposed of or appropriated crude, refers to its being so dealt with without having been refined (whether or not it has previously undergone initial treatment); “determination”, in a context relating to an assessment or determination on or in relation to a participator, means a determination under Schedule 2 to this Act that a loss is allowable to him or that neither an assessable profit nor an allowable loss has accrued to him;

• “initial storage”, in relation to oil won from an oil field, means the storage F114. . . of a quantity of oil won from the field not exceeding, in the case of storage in the United Kingdom [F115or another country], a quantity equal to ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is the greater), but does not include—

  (a)

  the storing of oil as part of or in conjunction with the operation of an oil refinery; or

  (b)

  deballasting; or

  (c)

  conveying oil in a pipe-line;

• “initial treatment”, in relation to oil won from an oil field, means the doing, at any place F114. . ., of any of the following things, that is to say—

  (a)

  subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

  (b)

  [F116separating oil so won and consisting of gas from other oil so won; or

  (c)

  separating oil so won and consisting of gas of a kind that is transported and sold in normal commercial practice from other oil so won and consisting of gas; or

  (d)

  liquifying oil so won and consisting of gas of such a kind as aforesaid for the purpose of transporting it; or

  (e)

  subjecting oil so won to any process of which the purpose is to secure that oil disposed of crude has the quality that is normal for oil so disposed of from the field,]

  but does not include—

  (i)

  the storing of oil even where this involves the doing to the oil of things within [F117any of paragraphs (a) to (e) of this definition] or

  (ii)

  [F118any activity carried on as part of, or in association with, the refining of oil not consisting of gas or any activity the sole or main purpose of which is to achieve a chemical reaction in respect of oil consisting of gas; or]

  (iii)

  deballasting;

• “land” includes land in the United Kingdom [F119or another country] covered with water;

• “licence” means a licence under [F120Part I of the Petroleum Act 1998] or the M6Petroleum (Production) Act (Northern Ireland) 1964 authorising the winning of oil, and “licensed area” shall be construed accordingly;

• “licensee” means—

  (a)

  the person entitled to the benefit of a licence or, where two or more persons are entitled to the benefit of a licence, each of those persons; and

  (b)

  a person who has rights under an agreement which is approved by the Board and is certified by the Secretary of State to confer on that person rights which are the same as, or similar to, those conferred by a licence;

• [F121“light gases”, except in relation to an election under section 134 of the Finance Act 1982 or section 109 of the Finance Act 1986, means oil consisting of gas of which the largest component by volume over any chargeable period, measured at a temperature of 15 degrees centigrade and a pressure of one atmosphere, is methane or ethane or a combination of those gases]

• “oil” has the meaning given by section 1(1) of this Act;

• “oil field” shall be construed in accordance with Schedule 1 to this Act [F122and “taxable field” and “non-taxable field” have the same meaning as in Part III of the Finance Act 1993];

• “participator” (except in paragraph 4 of Schedule 2 to this Act) means, in relation to an oil field and any chargeable period [F123(“the relevant chargeable period”)]—

  (a)

  a person who is or was at any time in [F124the relevant chargeable period] a licensee in respect of any licensed area then wholly or partly included in the field; and

  (b)

  a person who is no longer a licensee in respect of any licensed area wholly or partly included in the field, but who was such a licensee at any time in either of the two chargeable periods preceding [F124the relevant chargeable period]; and

  (c)

  a person who is no longer a licensee in respect of any licensed area wholly or partly included in the field (and who does not fall within paragraph (b) of this definition), but who has or had at any time in [F124the relevant chargeable period] a share of oil won (whether or not in that period) from the field, being a share with respect to any part of which either of the following conditions is or was satisfied at that time, that is to say—

  (i)

  he has or had neither disposed of that part nor relevantly appropriated it; or

  (ii)

  he has or had disposed of, but not delivered, that part; [F125and

  (d)

  a former participator to whom an amount is attributed under paragraph 2A(2) of Schedule 5 in respect of a default payment made in relation to the field in the relevant chargeable period; and

  (e)

  a former participator to whom an amount was attributed under paragraph 2A(2) of Schedule 5 in respect of a default payment made in relation to the field in either of the two chargeable periods preceding the relevant chargeable period; and

  (f)

  a person who—

  (i)

  made a default payment in relation to the field (whether the person was then a current participator or former participator),

  (ii)

  is not a participator during the relevant chargeable period under any of paragraphs (a) to (e) of this definition, and

  (iii)

  receives, in the relevant chargeable period, reimbursement expenditure (within the meaning of section 108(1)(c) of the Finance Act 1991) in respect of the default payment; and

  (g)

  a person who—

  (i)

  made a default payment in relation to the field (whether the person was then a current participator or former participator),

  (ii)

  is not a participator during the relevant chargeable period under any of paragraphs (a) to (f) of this definition, and

  (iii)

  received, in either of the two chargeable periods preceding the relevant chargeable period, reimbursement expenditure (within the meaning of section 108(1)(c) of the Finance Act 1991) in respect of the default payment;

  (and for the purposes of paragraphs (f)(i) and (g)(i), “current participator”, “former participator” and “default payment” have the same meaning as in paragraph 2A of Schedule 5;]

• “pipe-line” means a pipe-line as defined in section 65 of the M7Pipe-lines Act 1962;

• “production purposes”, in relation to an oil field, means any of the following purposes, that is to say—

  (a)

  carrying on drilling or production operations within the field; or

  (b)

  in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, pumping it to the place where it is first landed in the United Kingdom [F126or to the place in the United Kingdom [F127or another country] at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction]; or

  (c)

  the initial treatment of oil won from the field;

• [F128“refining”, in relation to oil, does not include subjecting it to initial treatment and “refined” and “refinery” shall be construed accordingly;];

• “relevant licence”, in relation to a participator in an oil field, means any licence held or previously held by him in respect of a licensed area wholly or partly included in the field;

• “relevantly appropriated”, in relation to oil won from an oil field, means appropriated to refining or to any use except use for production purposes [F129in relation to that or any other oil field], and “relevant appropriation” shall be construed accordingly;

• “the responsible person”, in relation to an oil field, has the meaning given by paragraph 4 of Schedule 2 to this Act;

• “royalty”, in relation to a participator in an oil field, means royalty payable (but not, it is hereby declared, oil delivered) to the Secretary of State under any relevant licence;

• “tax” or “the tax” means petroleum revenue tax.

(2)In this Part of this Act any reference to the use of an asset in connection with an oil field is a reference to its use in connection with that field for one or more of the purposes mentioned in section 3(1) of this Act (excluding section 3(1)(b)).

(3)In this Part of this Act any reference (however worded) to the doing of anything in a chargeable period in connection with an oil field or with oil won from an oil field shall, [F130as regards the first chargeable period for any oil field], be construed as including the doing of that thing in connection with the area of the field as subsequently determined under Schedule 1 to this Act or, as the case may be, with oil won from that area.

(4)In so far as a person is a participator in an oil field by virtue of a licence under the M8Petroleum (Production) Act (Northern Ireland) 1964, references in this Part of this Act to the Secretary of State (except references in Schedule 1) shall be construed in his case as references to the Department of Commerce for Northern Ireland.

[F13112ADate of delivery or appropriation: shipped oil not sold at arm's lengthU.K.

(1)This section has effect for the purpose of determining the date on which any oil to which it applies is to be regarded for the purposes of this Part as delivered or relevantly appropriated.

(2)This section applies to—

(a)oil (not being light gases) won from a field and disposed of crude by a participator otherwise than in sales at arm's length, and

(b)oil (not being light gases) so won and relevantly appropriated by a participator,

if the condition in subsection (3)(a) or (b) below is met.

(3)The condition is that the oil is or has been, or is to be,—

(a)transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, or

(b)transported by pipeline to a place in the United Kingdom and loaded on to a ship there.

(4)The date on which the oil is to be taken to be delivered, or (as the case may be) relevantly appropriated, by the participator is—

(a)the date of completion of load, in a case where the condition in subsection (3)(a) above is met,

(b)the date of the bill of lading, in a case where the condition in subsection (3)(b) above is met.]

Part IIU.K.

13–19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F132U.K.

Part IIIU.K. Miscellaneous and General

20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F133U.K.

21 Citation, interpretation and construction.U.K.

(1)This Act may be cited as the Oil Taxation Act 1975.

(2)In this Act—

• [F134“the Board” means the Commissioners for Her Majesty's Revenue and Customs;]

• “designated area” means an area designated by Order in Council under section 1(7) of the M9Continental Shelf Act 1964;

• “the Taxes Act” means the Income and Corporation Taxes Act [F1351988].

(3)Parts II and III of this Act, so far as they relate to income tax, shall be construed as one with the Income Tax Acts and, so far as they relate to corporation tax, shall be construed as one with the Corporation Tax Acts.

(4)Except so far as the context otherwise requires, any reference in this Act to any enactment shall be construed as a reference to that enactment as amended, and as including a reference to that enactment as applied, by or under any other enactment, including this Act.

F136(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULES

Section 1.

SCHEDULE 1U.K. Determination of Oil Fields

1(1)For the purposes of this Part of this Act an oil field is any area which the appropriate authority may determine to be an oil field, being an area of which every part is, or is part of, a licensed area.U.K.

(2)For the purposes of this Schedule the appropriate authority, in relation to any area—

(a)is the Secretary of State if the area is such that licences can be granted for all of it under [F137Part I of the Petroleum Act 1998];

(b)is the Department of Commerce for Northern Ireland if the area is such that licences can be granted for all of it under the M10Petroleum (Production) Act (Northern Ireland) 1964; and

(c)is the Secretary of State and that Department acting jointly if the area is such that licences can be granted for part of it under one and for part of it under the other of those Acts;

and any reference in this Schedule to the making of representations to the appropriate authority is, in a case falling within (c) above, a reference to the making of them to either the Secretary of State or the said Department.

2U.K.Before determining an area to be an oil field the appropriate authority—

(a)shall give notice in writing of the proposed determination to every person who is a licensee in respect of a licensed area wholly or partly included in that area and to any other licensee whose interests appear to the authority to be affected; and

(b)shall consider any representations in writing which a person to whom a notice under this paragraph has been given may make to the authority within sixty days of receiving the notice,

and the determination may be made either as proposed or with such modifications as appear to the authority to be appropriate after considering any representations made to the authority in accordance with this paragraph.

3U.K.A determination under this Schedule shall be in such form as the appropriate authority thinks fit and shall for purposes of identification assign to the field to which it relates a distinguishing number or other designation.

4U.K.The appropriate authority shall give notice of any determination made by the authority under this Schedule to each of the persons to whom notice of the proposed determination was given.

5U.K.A determination under this Schedule may from time to time be varied by a new determination thereunder made by the appropriate authority, and paragraphs 2 to 4 above shall apply to any such new determination.

Section 1.

SCHEDULE 2U.K. Management and Collection of Petroleum Revenue Tax

Management of taxU.K.

1(1)The tax shall be under the care and management of the Board; and the provisions of the M11Taxes Management Act 1970 specified in the first column of the following Table shall apply in relation to the tax as they apply in relation to a tax within the meaning of that Act, subject to any modifications specified in the second column of that Table and with the substitution, for references to Part IX of that Act or to the Taxes Acts, of references to this Part of this Act and, for references to chargeable periods within the meaning of that Act, of references to chargeable periods within the meaning of this Part of this Act.U.K.

(2)Any expression to which a meaning is given in this Part of this Act which is used in a provision of the M12Taxes Management Act 1970 applied by this paragraph shall, in that provision as so applied, have the same meaning as in this Part of this Act.

Returns by participatorsU.K.

2(1)Every participator in [F153a taxable field] shall, for each chargeable period, prepare and, within two months after the end of the period [F154or within such longer period as the Board may allow], deliver to the Board a return complying with the following provisions of this paragraph; but nothing in this sub-paragraph shall require a participator to deliver a return under this paragraph before 31st August 1975.U.K.

(2)A return under this paragraph for a chargeable period shall give the following information in relation to oil which is or was included in the participator’s share of any oil won from [F153the taxable field] (whether or not in that period), that is to say—

(a)in the case of each delivery (other than one made before 13th November 1974) in the period of oil disposed of by him crude (other than oil delivered as mentioned in (c) of this sub-paragraph), the return shall—

(i)state the quantity of oil delivered;

(ii)state the person to whom the oil was disposed of;

(iii)in the case of oil disposed of in a sale at arm’s length, state the price received or receivable for the oil or, in the case of oil disposed of otherwise than in a sale at arm’s length, state the market value of the oil [F155at the material time] [F156as determined in accordance with Schedule 3 to this Act in the case of the delivery] [F157or (in the case of light gases) the market value as determined in accordance with paragraph 3A of Schedule 3 to this Act]; and

(iv)contain such other particulars of or relating to the disposal as the Board may prescribe;

(b)in the case of each relevant appropriation of crude oil (other than one made before 13th November 1974) in the period (not being oil disposed of by him), the return shall—

(i)state the quantity of oil appropriated;

(ii)state the market value of the oil [F155at the material time] [F158as determined in accordance with Schedule 3 to this Act in the case of the appropriation] [F159or (in the case of light gases) the market value as determined in accordance with paragraph 3A of Schedule 3 to this Act]; and

(iii)contain such other particulars of or relating to the appropriation as the Board may prescribe;

(c)in the case of crude oil delivered to the Secretary of State in the period under the terms of a licence granted under [F160Part I of the Petroleum Act 1998], the return shall state the total quantity of the oil;

(d)in the case of crude oil which, at the end of the period, has either not been disposed of and not relevantly appropriated or has been disposed of but not delivered, the return shall—

(i)state the quantity of the oil;

(ii)state the market value of the oil [F161on the last business day] of the period; and

(iii)contain such other particulars relating to the oil as the Board may prescribe.

[F162(2A)Every participator in [F153a taxable field] shall, in the first return under this paragraph which he makes for that field, state whether any and, if any, how much [F163expenditure to which section 5A or section 5B] of this Act applies and which relates to, or to a licence for, any part of the field has been claimed under Schedule 7 to this Act—

(a)by him, or

(b)by a company associated with him in respect of that expenditure, or

(c)if he or such a company is the new participator, within the meaning of Schedule 17 to the Finance Act 1980, by the old participator, within the meaning of that Schedule, or by a company associated with him in respect of that expenditure,

and subsection (7) of section 5 of this Act applies for the purposes of this sub-paragraph as it applies for the purposes of that section.]

(3)A return under this paragraph for a chargeable period shall state—

(a)the amount of royalty payable by the participator for that period in respect of his share of oil won from the field as shown in the return or returns made by him to the Secretary of State under the relevant licence or licences;

(b)the amount of royalty paid by the participator in that period in respect of that share;

(c)the amount of any royalty paid under any relevant licence in respect of the field which was repaid to the participator in that period; and

(d)the amount of any periodic payment made by the participator to the Secretary of State in that period under each relevant licence otherwise than by way of royalty.

[F164(3A)A return under this paragraph for a chargeable period shall—

(a)state the amount (if any) which, in the case of the participator, is to be brought into account for that period in accordance with section 2(5)(e) of this Act;

(b)contain such particulars as the Board may prescribe (whether before or after the passing of the Finance Act 1987) with respect to any nominated transaction under Schedule 10 to that Act—

(i)the effective volume of which forms part of the participator’s aggregate effective volume (construing those terms in accordance with that Schedule) for any calendar month comprised in that chargeable period; and

(ii)which has not led to deliveries of oil or relevant appropriations of which particulars are included in the return by virtue of sub-paragraph (2) above; and

(c)contain such other particulars as the Board may prescribe (as mentioned above) in connection with the application of section 61 of and Schedule 10 to the Finance Act 1987.]

(4)A return under this paragraph shall be in such form as the Board may prescribe and shall include a declaration that the return is correct and complete.

[F165(5)The power of the Board to allow an extension of time under sub-paragraph (1) above shall include power—

(a)to allow an extension for an indefinite period; and

(b)to provide for the period of any extension to end at such time as may be stipulated in a notice given by the Board.]

3(1)If a participator fails to deliver a return within the time allowed for doing so under paragraph 2(1) above he shall be liable, subject to sub-paragraph (3) below—U.K.

(a)to a penalty not exceeding, except in the case mentioned in sub-paragraph (2) below, £500; and

(b)if the failure continues after it has been declared by the court or the [F166tribunal before which] proceedings for the penalty have been commenced, to a further penalty not exceeding £100 for each day on which the failure so continues.

(2)If the failure continues after the end of six months from the time by which the return ought to have been delivered, the penalty under sub-paragraph (1)(a) above shall be an amount not exceeding the aggregate of £500 and the total amount of the tax with which the participator is charged for the chargeable period in question.

(3)Except in the case mentioned in sub-paragraph (2) above, the participator shall not be liable to any penalty incurred under this paragraph for failure to deliver a return if the failure is remedied before proceedings for the recovery of the penalty are commenced.

Appointment of responsible person for each oil fieldU.K.

4(1)For each oil field a body corporate or partnership shall be appointed in accordance with this paragraph as the responsible person for that field to perform, in relation to the field, any functions conferred on it as such by this Part of this Act; and the body or partnership which for the time being holds that appointment is in this Part of this Act referred to as “the responsible person”.U.K.

(2)No body corporate shall be eligible for appointment as the responsible person for [F167a taxable field] unless it is resident in the United Kingdom, and no partnership shall be so eligible unless all its members are resident there.

(3)The participators in [F167a taxable field] shall, by notice in writing to the Board within the initial period, nominate a body corporate or a partnership for appointment as the responsible person for that oil field and, if the Board approve the nomination, the Board shall appoint that body or partnership as the responsible person and give it notice that it has been so appointed.

(4)If—

(a)the participators have made no nomination within the initial period; or

(b)the Board do not appoint the body or partnership nominated under sub-paragraph (3) above,

the Board shall appoint one of the participators in [F167the taxable field] as the responsible person for the field and shall give notice to that participator that he has been so appointed.

(5)For the purposes of the preceding provisions of this paragraph, the initial period is the period of thirty days beginning with the latest date on which notice of determination of [F167the taxable field] is given to any of the participators under paragraph 4 of Schedule 1 to this Act.

(6)The Board may at any time, on the application of all the participators in [F167a taxable field], appoint a body corporate or partnership nominated by the participators as the responsible person for that field in place of the body corporate or partnership which is the responsible person at that time, and shall give the body or partnership so appointed notice that it has been so appointed.

(7)The Board may, by notice in writing to the body corporate or partnership which is for the time being the responsible person for [F167a taxable field], revoke the appointment of that body or partnership as the responsible person for that field; and where they do so the Board shall appoint one of the participators in [F167the taxable field] as the responsible person for that field and shall give notice to the participator that he has been so appointed.

(8)In this paragraph “participator”, in relation to [F167a taxable field], means a person who is a licensee in respect of any licensed area wholly or partly included in the field.

Returns by the responsible personU.K.

5(1)The responsible person for [F168a taxable field]shall, for each chargeable period, prepare and, within one month after the end of the period [F169or within such longer period as the Board may allow], deliver to the Board a return for that period complying with sub-paragraphs (2) and (3) below; but nothing in this sub-paragraph shall require the responsible person to deliver a return under this paragraph before 31st July 1975.U.K.

(2)A return under this paragraph for a chargeable period shall—

(a)state the quantity of oil won and saved from [F168the taxable field] during the period;

(b)state the respective interests of the participators in the field in that oil;

(c)state what, in accordance with those interests, is each participator’s share of that oil; and

(d)contain such other particulars of or relating to the field as the Board may require.

[F170(2A)The reference in sub-paragraph (2)(d) above to particulars of or relating to the field includes a reference to particulars required for determining the amount by which any qualifying tariff receipts, within the meaning of section 9 of the Oil Taxation Act 1983, are to be treated as reduced by virtue of that section.]

[F171(2B)If in any chargeable period oil won from [F168the taxable field] is mixed as mentioned in section 63 of the Finance Act 1987 so as to give rise to blended oil, within the meaning of that section, then, as respects that chargeable period, for paragraph (a) of sub-paragraph (2) above there shall be substituted the following paragraph—

“(a)state the total of the shares of the participators in [F168the taxable field] of the oil won from the field during the period less so much of the oil won from the field as is not saved”.]

(3)A return under this paragraph shall be in such form as the Board may prescribe and shall include a declaration that the return is correct and complete.

[F172(4)The power of the Board to allow an extension of time under sub-paragraph (1) above shall include power—

(a)to allow an extension for an indefinite period; and

(b)to provide for the period of any extension to end at such time as may be stipulated in a notice given by the Board.]

6(1)If the responsible person fails to deliver a return within the time allowed for doing so under paragraph 5(1) above he shall be liable—U.K.

(a)to a penalty not exceeding £500, and

(b)if the failure continues after it has been declared by the court or [F173the tribunal before which] proceedings for the penalty have been commenced, to a further penalty not exceeding £100 for each day on which the failure so continues.

(2)The responsible person shall not be liable to any penalty incurred under sub-paragraph (1) above for failure to deliver a return if the failure is remedied before proceedings for the recovery of the penalty are commenced.

Production of accounts, books and other informationU.K.

F1747U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Incorrect returns, accounts, etc.U.K.

F1758U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1769U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Assessments to tax and determinations of loss, etc.U.K.

10(1)Where it appears to the Board that, in accordance with the provisions of this Part of this Act, an assessable profit has accrued to a participator in a chargeable period from [F177a taxable field], they shall make an assessment to tax on the participator and shall give him notice of the assessment.U.K.

(2)Where it appears to the Board that, in accordance with those provisions, an allowable loss has accrued to a participator in a chargeable period from [F177a taxable field], they shall make a determination that the loss is allowable to the participator and shall give him notice of the determination.

(3)Where it appears to the Board that, in accordance with those provisions, neither an assessable profit nor an allowable loss has accrued to a participator in a chargeable period, they shall make a determination to that effect and shall give him notice of the determination.

(4)A notice of assessment for a chargeable period shall state the amount of any allowable losses which, in accordance with those provisions, have been set against the assessable profit for that period.

(5)A notice of assessment or determination shall state that the participator may appeal against the assessment or determination in accordance with paragraph 14 below.

(6)After the service of the notice of assessment or the notice of determination the assessment or determination, as the case may be, shall not be altered except in accordance with the express provisions of this Part of this Act (including the provisions applied by paragraph 1 above).

11(1)Where a participator has under paragraph 2 above delivered to the Board a return for a chargeable period and the Board are satisfied that the information given in the return is correct in so far as it is material for the purpose of computing his assessable profit or allowable loss (if any) for that period, the Board shall (in so far as the computation falls to be made by reference to the matters dealt with in the return) make the assessment or determination under paragraph 10 above in accordance with the return.U.K.

(2)Where the Board are not so satisfied in relation to a participator’s return or a participator fails to deliver to the Board a return for a chargeable period as required by paragraph 2 above, the Board shall, in so far as the computation of his assessable profit or allowable loss (if any) for that period falls to be made by reference to the matters which were dealt with in the return or, as the case may be, ought to have been dealt with in a return, make the assessment or determination under paragraph 10 above to the best of their judgment.

(3)Nothing in sub-paragraph (2) above or in paragraph 5 above shall be taken, in a case where the participator has delivered a return as to which the Board are not satisfied as mentioned in sub-paragraph (1) above, to prevent the Board from basing their assessment or determination on the participator’s having had an interest in oil won and saved from the field different from that on which he based his return.

12(1)Where it appears to the Board—U.K.

(a)that the assessable profit charged to tax by or stated in an assessment ought to be or to have been larger or smaller; or

(b)that the allowable loss stated in an assessment or a determination of loss ought to be or to have been larger or smaller; or

(c)that, where they made a determination that neither an assessable profit nor an allowable loss accrued in a chargeable period, they ought to have made an assessment to tax or a determination of loss for that period, [F178or]

[F179(d)that for any chargeable period they ought to have made an assessment to tax instead of a determination of loss or a determination of loss instead of an assessment to tax];

the Board may make such assessments or determinations or such amendments of assessments or determinations as may be necessary; and where the Board exercise any of their powers under this paragraph in relation to a chargeable period, they may make such [F180assessments or determinations or amendments of assessments or determinations] for other chargeable periods as may be necessary in consequence of the exercise of those powers[F181and “taxable field” and “non-taxable field” have the same meaning as in Part III of the Finance Act 1993].

(2)Where under sub-paragraph (1) above it appears to the Board that the assessable profit for a chargeable period ought to have been larger and that the deficiency resulted from an excessive allowable loss accruing in a subsequent period having been set against the profit for that period, the Board may (notwithstanding anything in section 34 of the M13Taxes Management Act 1970 (ordinary time limit for assessments)) make a further assessment by virtue of sub-paragraph (1) above at any time not later than six years after the end of the chargeable period in which the allowable loss accrued.

[F182(3)Where under this paragraph the Board make an assessment or determination or amend an assessment or determination they shall give notice thereof to the participator concerned; and sub-paragraphs (4), (5) and (6) of paragraph 10 above shall apply in relation to any such assessment, determination or amendment as they apply in relation to an assessment or determination under that paragraph.]

[F18312A(1)Where—U.K.

(a)the Board has extended the period for the delivery of any return that is required under paragraph 2 of this Schedule to be delivered for any chargeable period, and

(b)the relevant time falls more than one year after the end of the chargeable period,

the period within which the Board may make an assessment under this Schedule for that chargeable period shall not expire before the end of the period of five years beginning with the relevant time.

(2)In this paragraph “the relevant time” means the earlier of—

(a)the time which, as a result of the extension, is the latest time for the delivery of the return; and

(b)the time when the return is delivered.]

Payment of taxU.K.

13U.K.Subject to paragraph 14 below, the tax charged in an assessment made on a participator for any chargeable period [F184and payable shall be due within six months] after the end of that chargeable period or, if later, thirty days after the date of issue of the notice of assessment; but no tax shall be payable by virtue of this paragraph before 30th April 1976.

AppealsU.K.

14(1)A participator may appeal F185... against an assessment or determination [F186or an amendment of an assessment or determination] made on or in relation to him by notice of appeal in writing given to [F187HMRC] within thirty days after the date of issue of the notice of assessment or determination [F186or of the notice of the amendment].U.K.

[F188(2)The notice of appeal must specify the grounds of appeal.]

(3)A participator who has given notice of appeal under sub-paragraph (1) above against an assessment charging him with any tax for a chargeable period may, if he delivered a return for that period as required by paragraph 2 above, withhold, until the determination or abandonment of the appeal, so much of the tax charged in the assessment as is the smaller of—

(a)the amount of the tax so charged; and

(b)tax on the difference between—

(i)the aggregate of the consideration received or receivable for oil as stated in the participator’s return in pursuance of sub-paragraph (2) of that paragraph and, subject to sub-paragraph (4) below, the market value of oil as so stated; and

(ii)the aggregate of the corresponding consideration and value as included in the assessment.

(4)Subject to sub-paragraph (5) below, where the market value of all the oil for which a market value is stated in the participator’s return is, as stated in that return, less than the value which is produced for that oil by applying to it the average price mentioned in sub-paragraph (6) below, sub-paragraph (3) above shall have effect as if, for the reference to the market value of oil as so stated, there were substituted a reference to the value which is so produced for that oil.

(5)The comparison of values and the substitution required by sub-paragraph (4) above shall, in the case of an appeal by a participator whose return relates both to gas and to other oil, be made separately for the gas and for the other oil.

(6)The average price referred to in sub-paragraph (4) above is the average price at which all oil included in the relevant returns as oil delivered in the period covered by the returns and disposed of in sales at arm’s length was so disposed of.

(7)The relevant returns for the purposes of sub-paragraph (6) above are all the returns of all the participators in all oil fields which—

(a)were made for the chargeable period preceding that to which the appeal relates; and

(b)were delivered before the end of the chargeable period to which the appeal relates.

(8)The participator may at any time, if [F189HMRC] do not object to his doing so, abandon an appeal instituted by him; and for this purpose he shall notify his desire to do so to [F189HMRC] who may, within thirty days after being so notified, object by notice in writing to the participator.

(9)Where, at any time between—

(a)the giving of a notice of appeal against the assessment [F190determination or amendment] or from a decision of [F191HMRC] on a claim under section 33 of the M14Taxes Management Act 1970 as applied by paragraph 1 above, and

(b)the determination of the appeal by the [F192tribunal],

[F191HMRC] and the participator agree [F190on how the assessment, determination, amendment or decision should be varied or on what assessment or determination should be substituted in relation to the chargeable period in question, the same consequences shall ensue as if the [F193tribunal] had determined the appeal to that effect].

[F194(10)If [F195the appeal that is notified to the tribunal and] it appears to [F196the tribunal] that the assessment, determination or amendment is wrong—

(a)because no, or a smaller, assessable profit or a, or a larger, allowable loss has accrued for the chargeable period in question; or

(b)because a, or a larger, assessable profit or no, or a smaller, allowable loss has accrued for that period,

the [F197tribunal] shall vary the assessment, determination or amendment in such manner, or substitute such assessment or determination, as may be required; and it shall be for the participator to satisfy the [F197tribunal] as to any matter within paragraph (a) above.]

[F198(11)When an appeal is notified to the tribunal, the decision of the tribunal on the appeal is final and conclusive.

(12)But sub-paragraph (11) is subject to—

(a)sections 9 to 14 of the Tribunals, Courts and Enforcement Act 2007,

(b)Tribunal Procedure Rules, and

(c)any provision of this Schedule.]

[F199Appeal: HMRC review or determination by tribunalU.K.

14A(1)This paragraph applies if notice of appeal has been given to HMRC.U.K.

(2)In such a case—

(a)the participator may notify HMRC that the participator requires HMRC to review the matter in question (see paragraph 14B),

(b)HMRC may notify the participator of an offer to review the matter in question (see paragraph 14C), or

(c)the participator may notify the appeal to the tribunal (see paragraph 14D).

(3)See paragraphs 14G and 14H for provision about notifying appeals to the tribunal after a review has been required by the participator or offered by HMRC.

(4)This paragraph does not prevent the matter in question from being dealt with in accordance with paragraph 14(9).

Participator requires review by HMRCU.K.

14B(1)Sub-paragraphs (2) and (3) apply if the participator notifies HMRC that the participator requires HMRC to review the matter in question.U.K.

(2)HMRC must, within the relevant period, notify the participator of HMRC’s view of the matter in question.

(3)HMRC must review the matter in question in accordance with paragraph 14E.

(4)The participator may not notify HMRC that the participator requires HMRC to review the matter in question and HMRC shall not be required to conduct a review if—

(a)the participator has already given a notification under this paragraph in relation to the matter in question,

(b)HMRC have given a notification under paragraph 14C in relation to the matter in question, or

(c)the participator has notified the appeal to the tribunal under paragraph 14D.

(5)In this paragraph “relevant period” means—

(a)the period of 30 days beginning with the day on which HMRC receive the notification from the participator, or

(b)such longer period as is reasonable.

HMRC offer reviewU.K.

14C(1)Sub-paragraphs (2) to (5) apply if HMRC notify the participator of an offer to review the matter in question.U.K.

(2)When HMRC notify the participator of the offer, HMRC must also notify the participator of HMRC’s view of the matter in question.

(3)If, within the acceptance period, the participator notifies HMRC of acceptance of the offer, HMRC must review the matter in question in accordance with paragraph 14E.

(4)If the participator does not give HMRC such a notification within the acceptance period, HMRC’s view of the matter in question is to be treated as if it were contained in an agreement in writing under paragraph 14(9) for the settlement of that matter.

(5)Sub-paragraph (4) does not apply to the matter in question if, or to the extent that, the participator notifies the appeal to the tribunal under paragraph 14H.

(6)HMRC may not notify the participator of an offer to review the matter in question (and, accordingly, HMRC shall not be required to conduct a review) if—

(a)HMRC have already given a notification under this paragraph in relation to the matter in question,

(b)the participator has given a notification under paragraph 14B in relation to the matter in question, or

(c)the participator has notified the appeal to the tribunal under paragraph 14D.

(7)In this paragraph “acceptance period” means the period of 30 days beginning with the date of the document by which HMRC notify the participator of the offer to review the matter in question.

Notifying appeal to the tribunalU.K.

14D(1)This paragraph applies if notice of appeal has been given to HMRC.U.K.

(2)The participator may notify the appeal to the tribunal.

(3)If the participator notifies the appeal to the tribunal, the tribunal is to decide the matter in question.

(4)Sub-paragraphs (2) and (3) do not apply in a case where—

(a)HMRC have given a notification of their view of the matter in question under paragraph 14B, or

(b)HMRC have given a notification under paragraph 14C in relation to the matter in question.