Oil Taxation Act 1975 section 8

Oil allowance

Section 8 provides each oil field with a tax-free oil allowance that reduces the amount on which petroleum revenue tax (PRT) is charged, subject to per-period and lifetime limits.

• Each oil field receives an oil allowance of 250,000 metric tonnes per chargeable period, shared among participators in proportion to their share of oil won and saved from the field.
• The allowance is converted into a cash equivalent using a formula based on the participator's gross profit, their share of the allowance, and their share of oil won and saved — and this cash amount is then deducted from the participator's assessable profit (after any loss relief) to reduce or eliminate the amount subject to PRT.
• The total cumulative oil allowance for any single oil field is capped at 5 million metric tonnes over the life of the field, with any necessary restriction in the final period apportioned between participators.
• A participator may elect to have the cash equivalent calculated separately for non-gas oil and gas, which can be beneficial where the field produces both types and their values differ significantly.

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