The Chancellor of the Exchequer today announced new targeted tax reliefs for brown field areas, aimed at incentivising investment in, and supporting continued production from, older oil and gas fields in the North Sea. This reflects a continuation of the Government's strategy of using targeted tax reliefs to unlock up-front industry investment.


The Finance Act 2012 amended the field allowances legislation to give HMRC the power to extend field allowances to oil and gas fields that have already received development approval, and which are to undergo additional development. Prior to these changes, field allowances were available principally for "new fields", which received their first authorisation of development on or after 22 April 2009. Today's announcement represents the first extension of such field allowances to older (so called "brown field") areas.

By way of background, a field allowance reduces the amount of profit from a field that is subject to the Supplementary Charge (currently charged at a rate of 32%). Field allowances do not affect the charge to Ring Fence Corporation Tax (at the rate of 30%), which remains payable on all taxable profits from the field. The Supplementary Charge remains payable on all profits not protected by the field allowance. The charge to Petroleum Revenue Tax (PRT) (payable at the rate of 50% on certain older fields) is also unaffected by field allowances.

The new brown field allowance is expected to provide relief from the Supplementary Charge for up to: (i) £250m of income from qualifying brown field projects (amounting to tax relief of up to £80m); or (ii) £500m of income from projects in fields paying PRT (amounting to tax relief of up to £160m).  

Definition of qualifying brown field projects

Qualifying projects will be incremental projects which:

  • increase expected production from an offshore field as described in a revised development consent authorised by the Department of Energy and Climate Change (DECC) on or after 7 September 2012; and
  • possess verified expected capital costs per tonne of incremental reserves in excess of £60.  

Level of field allowance

The maximum level of brown field allowance will be £50/tonne and will be available to projects with verified expected capital costs of £80/tonne or above.

HM Treasury has predicted that the allowance will cost it around £100 million a year.

Unlike previous targeted field allowances, the level of the new allowances depends not only on the characteristics (size, depth, date of authorisation and similar) of the field in question, but also on whether the field is within the PRT regime. Older PRT paying fields are subject to higher marginal direct tax rates (up to 81%) when compared to newer non PRT paying fields (up to 62%). The measure therefore appears designed not only to incentivise development generally, but also (at least in part) to recognise the tax imbalance between PRT and non PRT paying fields.


An Oil & Gas UK press release welcomed the announcement and predicted that the new relief would lead to investments amounting to £2 billion, an increase in oil and gas recovery by 150 million barrels of oil equivalent and add tax revenues of over £1.5 billion.

Today's announcement should be viewed as the latest in a series of similar measures introducing targeted tax reliefs for the oil and gas industry. In Budget 2012 the amount and scope of the existing small field allowance was extended and a new field allowance was introduced for large deep water fields (aimed at the fields to West of Shetland fields), whilst in July of this year new field allowances for shallow water gas fields were announced. 

Set in the wider context of falling North Sea tax revenues, and the continued wider economic uncertainty, these measures together represent a concerted effort by the Government to use targeted/field-specific tax reliefs, with a relatively modest up-front cost to the Exchequer, to unlock significant investment in the UK petroleum sector. It is clearly hoped that such investment will in the longer term halt or even reverse the decline in North Sea tax revenues and extend the useful economic (and tax generating) life of many fields.

Useful links

  • HM Treasury's press release published today can be found here.
  • Oil & Gas UK's press release issued today is available to download here.
  • Click here for our previous e-bulletin on Budget 2012 and its impact on North Sea oil and gas.
  • Click here for our previous e-bulletin on the tax relief for shallow water gas fields announced in July 2012.