Clause 88 and schedule 43I presume that it will be convenient to debate the schedule at the same timerelate to the abolition of the provisional expenditure allowance. Provisional expenditure allowance has, as the Government suggest, ceased to be appropriate. It was intended to provide relief against PRT for start-up costs, but as no field that has started up since 1993 is subject to PRT, it is no longer required. Moreover, its continued existence has caused claw-back problems for some companies that have been hit by what the Government refer to as unintended and detrimental tax charges. Further provisional expenditure already granted will be clawed back in the following 12 months. No one appears to be in favour of its retention, and we do not represent an exception.
As we know, PRT differs from other taxes in that expenditure relief does not reduce a companys tax liability until the expenditure has been claimed by the company and allowed by HMRC. When the expenditure has been claimed and allowed, it reduces PRT for the next half-yearly assessmentthe six-month PRT assessment periodrather than necessarily for the half-yearly period in which it was incurred.
To compensate somewhat for the consequential timing disadvantages that might, therefore, ensue, section 2 of the Oil Taxation Act 1975 provides for a provisional allowance for each chargeable period. That provisional allowance is calculated under section 2(9)(a) and section 2(11) of the Act by reference to two components. If the first is greater than the second, the difference between them is the amount of provisional allowance to be given in the assessment together with any expenditure already allowed and linked to the chargeable period. Conversely, if the second exceeds the first, no provisional allowance is due. This is a rather complicated set of provisions. We have checked the Act to ensure that we have got things absolutely straight.
The first of the two componentsremember that if the second exceeds the first, no provisional allowance is dueunder section 2(9)(a) of the 1975 Act is 5 per cent. of the amount included in the participators returnunder section 2(2) of the 1975 Actin respect of its estimate of the total sale proceeds or market values computed in accordance with section 3(2) of sales and appropriations of oil for the chargeable period. The participators estimate of the market value of non-arms length disposals is used regardless of whether the oil taxation office subsequently agrees a higher or lower figure to be included in the assessment under section 2(5)(b) and section 2(5)(c) of the 1975 Act.
If the participator fails to submit a return and an estimated assessment is made, no provisional allowance is available. Once a return is made, a provisional allowance based on the incomings returned is made automatically.
Let me return to our consideration of whether the second component exceeds the first. The second component is the amount of any expenditure claimed under sections 5 and 6but not any related supplementwhich was incurred in the chargeable period in question and which has been allowed by the oil taxation office for inclusion in the assessment for that chargeable period. That is an outline of what we have in front of us, which this clause and schedule are seeking to abolish.
As for the clawback, the 5 per cent. allowance is provisional and section 2 of the 1975 Act prescribes a clawback of the relief given. Subject to additional rules, also in section 2, any provisional expenditure allowance given in a particular chargeable period is clawed back in the next but one chargeable period.
Section 2 of the 1975 Act modifies the basic rule in two ways. Under section 2(10)(a), where expenditure allowed in a chargeable period was incurred in the immediately preceding period and provisional allowance was given in that period, a further adjustment is required. The clawback in the computation of any 5 per cent. provisional allowance given in the last but one chargeable period will be increased by an amount equal to the expenditure now allowed which was incurred in respect of the immediately preceding chargeable periodthe six-month periods under which the petroleum revenue taxation operatesor the 5 per cent. provisional allowance of the immediately preceding chargeable period, whichever is the lower figure. However, under section 2(10)(b) of the same Act, the clawback of provisional allowance given for the last but one chargeable period is reduced by the equivalent amount of any increase made under section 2(10)(a) of the Oil Taxation Act 1975 in the assessment for the immediately preceding chargeable period.
My point is that those seem to be fiendishly complicated regulations, and the clause and the schedule before us appear to have the worthy aim of simplifying our tax code and seeking to extract those regulations from it. No one seems to favour their retention, and we certainly do not represent an exception.