How do you calculate the cash equivalent of a tariff receipts allowance under Oil Taxation Act 1983 Schedule 3 paragraph 2?

The cash equivalent is calculated using the formula A × B ÷ C, where A is the qualifying tariff receipts, B is the tariff receipts allowance in metric tonnes, and C is the oil volume in metric tonnes to which those receipts relate. This proportions the tariff receipts by comparing the allowance volume to the actual oil volume processed or transported.

What happens if the tariff receipts allowance exceeds the oil volume in the formula?

If the tariff receipts allowance (B) is greater than the oil volume (C), the ratio B ÷ C is capped at 1. This means the cash equivalent can never exceed the full amount of qualifying tariff receipts. Where the allowance is more generous than the oil actually handled, the reduction is limited to 100% of the receipts.

Which other provisions affect the tariff receipts allowance calculation under Schedule 3?

The calculation under paragraph 2 is expressly subject to paragraphs 3 and 6 of the same Schedule, which impose additional conditions and adjustments. Accountants and tax advisers must consider those provisions alongside the formula when determining the final cash equivalent of the tariff receipts allowance for petroleum revenue tax purposes.

What are qualifying tariff receipts in United Kingdom oil taxation?

Qualifying tariff receipts are payments received by a participator in an oil field from another field (a user field) for providing processing or transportation services. These receipts may need to be reduced for petroleum revenue tax purposes, and the cash equivalent formula determines the value of that reduction under Schedule 3 of the Oil Taxation Act 1983.

Oil Taxation Act 1983 section 2

Schedule 3 paragraph 2 — Calculating the cash equivalent of a tariff receipts allowance

Section 2 explains how to calculate the cash equivalent of a participator's share of the tariff receipts allowance for a user field in a given chargeable period, using a specific formula.

The cash equivalent is calculated using the formula: A × B ÷ C, where A is the qualifying tariff receipts, B is the tariff receipts allowance (in metric tonnes), and C is the oil volume (in metric tonnes) to which those receipts relate.
This calculation applies where the qualifying tariff receipts from a user field are to be reduced under the principal section for petroleum revenue tax purposes.
If the ratio B ÷ C would exceed 1 (i.e. the allowance exceeds the oil volume), it is capped at 1, meaning the cash equivalent cannot exceed the actual qualifying tariff receipts.
The formula is subject to further modifications set out in paragraphs 3 and 6 of the Schedule.

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