Clause 87

Part of Finance Bill – in a Public Bill Committee at 3:30 pm on 18 June 2009.

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Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 3:30, 18 June 2009

Thank you, Mr Atkinson, for that clarification. I mentioned clause 89, but we are on clause 87 and schedule 42. Schedule 42 deals with the oldest, or first-round licences, that are due to expire in 2010 and proposes a way in which extended licences can be issued, and decommissioning relief against petroleum revenue tax, PRT, can be carried over for the licence  holder, after both extension and expiry. The existing position for PRT, which applies, as we know, only to fields developed before 1993, was summarised in the Government’s consultation response in November:

“When a field reaches the end of its productive life and decommissioning costs are incurred, to the extent that such costs are deductible for PRT purposes, any losses arising can be carried back for offset against profits from the field without limit, subject to the retention of the licence or within two chargeable periods of the relinquishment of the licence”.

As I understand the PRT regime, a chargeable period is a period of six months. I think the Minister is confirming that. So, under current legislation, PRT relief for decommissioning expenditure is not available to a company if those costs have been incurred for more than 12 months—two PRT periods—after it has ceased to be a licence holder in respect of that taxable field. The new rules will allow relief for such expenditure, but will also ensure that any income that may arise in respect of the assets in question will also be chargeable to PRT.

The changes, as I understand them, provide necessary clarity on what should happen if a license expires, or is due to expire, before this can happen. As it stood, if a company ceased to be a licensee, its obligation to decommission would remain, but finding itself outside the PRT regime, it would not have been able to relieve this cost against the PRT it had previously paid. Companies will now continue to be deemed to be licence holders for PRT purposes after the licence has expired. The extended licences themselves will be deemed to have expired at the point when production stops. We think this is a relatively neat solution to that problem, it has been broadly welcomed and addresses a real issue. We therefore see no reason to oppose the solution that DECC has put forward and that schedule 42 would implement.