Energy giant Centrica, the parent company of British Gas, will see a £209m spike in its 2004 tax bill under IFRS because of the new accounting treatment for complex petroleum revenue taxes (PRT).
The company has always treated PRT as a cost of sales, but will now have to add the amount to its tax charge. This would drastically increase its tax bill from £306m under UK GAAP to £520m under IFRS.
Centrica said that earnings would also take a knock because the new calculation for the tax would increase the PRT charge for 2004 by £48m – just under 10% of the IFRS tax figure for the year.
Richard Wilson, global head of energy at Ernst & Young, said that, under UK GAAP, there was no definitive guidance on how to cope with PRT because it was so intricate.
‘PRT has always been very difficult to handle, so the Oil Industry Accounting Committee left it to companies to decide how to account for it,’ said Wilson. ‘The OIAC said companies should treat PRT as either a cost or a tax, then give a clear explanation about their decision and stick to it.’
In the UK, petroleum revenue tax is levied exclusively on oil and gas extracted from the North Sea and is calculated using methods based on how the oil and gas is produced.
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