The Inland Revenue’s administration of petroleum revenue tax – tax on the profits from production of North Sea oil and gas – is generally effective according to a report to Parliament today by head of the National Audit Office, Sir John Bourn.
The National Audit Office report on the Inland Revenue’s management of petroleum revenue tax, which has generated almost £42 billion for the Exchequer since its introduction in 1975, found that:
- the Department’s Oil Taxation Office is managing the risks associated with the assessment and collection of this tax – these risks include mis-statements of production volumes and values, expenditure claims, and tax avoidance; and
- the vast majority of the tax assessed as due from the companies concerned is successfully collected and because firms are required to make petroleum revenue tax payments in monthly instalments, on average some 96 per cent of the tax due is collected on account in advance of formal assessment.
Key factors which the Inland Revenue check in assessing petroleum revenue tax liabilities are the value of production reported by companies and whether expenditure claims are allowable under the legislation governing the tax. In both areas, the report suggests that the position is generally satisfactory but that there is scope for the Inland Revenue to work more closely with the Department of Trade and Industry, which is responsible for the regulation of the oil and gas industry. Also, the recent integration of the work of the Oil Taxation Office and the Department of Trade and Industry’s Oil and Gas Royalties Office should be used to identify opportunities to develop the Inland Revenue’s approach.
As part of a wider Departmental initiative, the Oil Taxation Office is developing new arrangements specific to petroleum revenue tax to assess the quality of tax inspectors’ work. It carried out an initial round of reviews in summer 2000. The report stresses the importance of developing this work, where there have been difficulties in identifying external assessors with the skills to carry out reviews.
The Oil Taxation Office has clear reporting lines through which it provides Inland Revenue senior management with regular accounts of progress against targets. Its published targets do not currently embrace all the Office’s business aims, for example the accurate assessment of tax. The report recommends that the Department examines how targets could be expanded to provide a more comprehensive view of the administration of petroleum revenue tax.