OT21001 - Corporation Tax Ring Fence and Supplementary Charge

Introduction to Ring Fence

Oil production companies are subject to normal corporation tax rules, but with a number of modifications. The reasons for these modifications are partly explained in the section of OT setting out the history of the oil taxation regime. The corporation tax ring fence is an entirely different concept from the PRT ring fence, although the corporation tax ring fence was conceived at the same time and, again, exists in order to protect the exchequer (See OT00010 to OT00190). For PRT each individual field is separately ring fenced on a field by field basis. The corporation tax ring fence is of greater circumference and embraces basically all the oil exploration and production etc activity carried on by the company. The corporation tax ring fence is in effect an added layer of legislation over and above the normal corporation tax regime applicable to all trades and commercial etc activities. Although the corporation tax ring fence does not directly extend the scope of the tax charge it is a mechanism for measuring profits from oil exploitation etc and safeguarding the tax arising therefrom by separating the whole of a company's exploration and production operations from its other activities.

Finance Act 2002 introduced with effect from 17 April 2002, a 10% supplementary charge on companies producing oil and gas in the UK or on the UK continental shelf. The charge is levied on the ring-fence profits without deduction for financing costs. At the same time, first-year allowances were introduced for certain ring fence plant and machinery and mineral extraction expenditure. The guidance is at OT21200 onwards.