How is the tax payable on account calculated under section 4 of the Petroleum Revenue Tax Act 1980 Schedule?

The tax payable on account is calculated by applying the petroleum revenue tax rate to the assessable profit figure determined under paragraphs 2 and 3 of the Schedule. A statutory cap under section 9 of the Oil Taxation Act 1975 is then applied to limit the maximum amount of tax that can be charged for the period.

What is the role of the section 9 cap in on-account petroleum revenue tax calculations?

The section 9 cap under the Oil Taxation Act 1975 places an upper limit on petroleum revenue tax for any period. When applied to on-account calculations, the assessable profit or allowable loss used in the cap must be computed using the same paragraph 2 method as the main on-account computation, rather than the normal end-of-period method.

How is expenditure qualifying for supplement treated when applying the statutory cap on account?

Expenditure treated as qualifying for supplement under the on-account rules is not excluded when calculating the section 9 cap. This preserves the benefit of the supplement in the interim calculation, preventing the cap from clawing back any advantage that supplement recognition provided during the on-account computation period.

Can the statutory cap result in a lower tax liability than the initial petroleum revenue tax calculation?

Yes. If the section 9 cap calculation produces a maximum liability lower than the tax initially computed by applying the rate to assessable profit, the tax payable on account is limited to the cap amount. For example, a preliminary tax of £7.5 million could be reduced to £6 million if the cap so dictates.

Petroleum Revenue Tax Act 1980 section 4

Calculating the tax payable on account

Section 4 of the Schedule explains how the actual tax payable on account is calculated once assessable profit has been determined and reduced, including how the statutory cap on petroleum revenue tax applies.

Tax payable on account is calculated by applying the tax rate to the assessable profit figure arrived at under the earlier computation and reduction steps.
A statutory cap (under section 9 of the Oil Taxation Act 1975) is then applied to limit the amount of tax that can be charged.
When applying the cap, the assessable profit or allowable loss is computed using the same method as in the earlier computation step.
Expenditure that has been treated as qualifying for supplement is not excluded when calculating the cap, preserving the benefit of that supplement in the on-account computation.

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