Appendix 1. Fiscal Regime

Corporation Tax (CT) and Supplementary Charge (SCT)

The combination of SCT and CT mean that all new field developments are taxed at a rate of 50%.

Corporation Tax (CT) is applied to all company profits in the UK at a rate of 30%. However the CT regime applying to the oil and gas exploration and production industry is modified and extended. Production has been subject to two additional imposts: Royalty and Petroleum Revenue Tax (PRT), although Royalty was abolished from 1 January 2003.

The Supplementary Charge to Corporation Tax (SCT) was raised to 20% from 1 January 2006. It was originally introduced at a rate of 10% in the April 2002 budget, which also saw the introduction of 100% First Year Allowances for UKCS capital expenditure. Since the introduction of 100% First Year Allowances, all costs are effectively tax deductible as incurred, with the exception of long life assets which secure a 24% First Year Allowance, and 6% of the remaining balance on a reducing balance basis.

Taxable profits derived from the extraction of oil and gas from the UKCS are also “ring fenced” so that losses from other activities cannot be offset against ring fenced profits. Stringent rules are also applied to ensure that only interest relating to UKCS projects is deductible within the ring fence. The taxable profit for SCT differs from CT in that finance costs are not deductible.