How does section 7A of the Oil Taxation Act 1983 reduce disposal receipts?

Section 7A reduces disposal receipts by applying the formula 1 − T/A, where T is the total tax-exempt tariffing use and A is the total use of the asset during the reference period. This ensures the disposal receipt reflects only the portion of use that was not already exempt from PRT.

What is the reference period for calculating the reduction under OTA 1983 section 7A?

The reference period ends on the date of disposal and extends back for six years or to the date the asset was first brought into existence, whichever is shorter. Use by both the current owner and previous owners during this period is taken into account when calculating the reduction formula.

How does section 7A prevent double counting of tax-exempt tariffing use?

If a reduction under section 7A was already applied on a previous disposal of the same asset, the use counted for that earlier reduction is excluded from the T and A values in the current calculation. This ensures the same period of tax-exempt tariffing use is never counted twice across successive disposals.

How is the amount of use measured for the purposes of OTA 1983 section 7A?

Where the asset is used in relation to oil, use is measured by the volume of oil handled. Where the use does not relate to oil, a just and reasonable basis must be applied. The extent to which use is referable to the interest disposed of is also determined on a just and reasonable basis.

Oil Taxation Act 1983 section 7A

Reduction of disposal receipts: use giving rise to tax-exempt tariffing receipts

Section 7A provides a mechanism to reduce disposal receipts when an asset has been partly used to generate tax-exempt tariffing income during the period leading up to its disposal.

Disposal receipts are reduced by a formula that reflects the proportion of the asset's use that gave rise to tax-exempt tariffing receipts during the reference period
The reference period is the shorter of six years or the life of the asset, ending on the date of disposal, and the formula considers use by both the current owner and previous owners
Use that has already been taken into account to reduce disposal receipts on an earlier disposal of the same asset cannot be counted again
The amount of use is measured by reference to the volume of oil handled, or on a just and reasonable basis for non-oil use

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