IMPACT OF
POLITICAL, SOCIAL
AND LEGAL FACTORS
ON THE BUSINESS
ASSIGNMENT 4
,BTEC Level 3 Extended Diploma in Business
Table of Contents
TABLE OF CONTENTS.........................................................................................................................1
INTRODUCTION................................................................................................................................2
POLITICAL FACTORS AFFECTING BP IN THE UK AND INDIA................................................................2
LEGAL FACTORS AFFECTING BP IN THE UK AND INDIA......................................................................3
SOCIAL FACTORS AFFECTING BP IN THE UK AND INDIA.....................................................................4
ADAPTING BUSINESS ACTIVITIES TO SUIT THE ENVIRONMENT.........................................................6
EVALUATION AND RECOMMENDATIONS.........................................................................................10
CONCLUSION..................................................................................................................................14
REFERENCES....................................................................................................................................14
U1 [P6, M3, D2] 1
, BTEC Level 3 Extended Diploma in Business
Introduction
This report aims to describe how political, legal and social factors impact upon BP’s
business activities in two contrasting environments which are those of the UK and India. It
will further analyse the company activities that have been adapted as a result of these
factors in both countries and justified recommendations will be made in regards to future
changes in economic, legal, political and social aspects.
Political factors affecting BP in the UK and India
Political factors are government policies and their administrations which have the potential to
influence a business. Business operations can be impacted as a result of political factors, as
they can require or prohibit the company to carry out certain activities. The political decisions
made in both countries therefore have a crucial influence in many areas of oil and gas
industry.
United Kingdom: In the United Kingdom, a large company like BP is subject to different
types of taxes due to being in the particular industry. Taxes on oil must be paid before any
dividends, as soon as the profit levels for the year have been determined.
The first type of tax that companies are subject to is Normal Corporation Tax, which is
applied on the profits from their downstream segment. These activities include BP’s global
manufacturing and marketing operations within three businesses: fuels, lubricants and
petrochemicals, taxed at 20%. They are expected to fall to 19% in 2017 and reduce even
further to 17% in 2020.
The second one is Ring Fence Corporation Tax (RFCT), applied to BP’s upstream segment
responsible for activities in oil and natural gas exploration, field development and production,
as well as midstream transportation, storage and processing. It also includes marketing and
trading of natural gas. The rate of RFCT is 30%, but there is another tax regime called
Supplementary Charge (SC) which is charged at 10% (a new rate, recently falling from
20%). These two taxes added make the effective rate that BP needs to pay, which is 40%.
Up until January 2016 there was a third type that oil and gas companies had to pay, called
the Petroleum Revenue Tax (PRT). The sector was facing great difficulties because of low oil
prices, especially in the North Sea offshore industry, where the plunge led to thousands of
people losing their jobs. Crude was standing at a little over $40 as compared to $115 a
barrel in 2014, which led the government to decide to cut Petroleum Revenue tax from 50%
to 10% in 2015 as an attempt to boost efficiency and help companies. However in 2016, in
an attempt to maintain industry interests in the future of the UK’s oil reserves, it was decided
that PRT should be effectively abolished and is now 0%.
All of these changes are relevant to BP and its operations. The company, which has huge
operations in the North Sea, will certainly benefit from lower taxes because their costs will be
reduced and they can offer higher dividends to shareholders or make bigger investments to
further ease the effects of falling oil prices. It should be noted however that even if corporate
tax for other businesses as whole goes down, BP would be unaffected because the oil
sector is charged differently.
U1 [P6, M3, D2] 2
POLITICAL, SOCIAL
AND LEGAL FACTORS
ON THE BUSINESS
ASSIGNMENT 4
,BTEC Level 3 Extended Diploma in Business
Table of Contents
TABLE OF CONTENTS.........................................................................................................................1
INTRODUCTION................................................................................................................................2
POLITICAL FACTORS AFFECTING BP IN THE UK AND INDIA................................................................2
LEGAL FACTORS AFFECTING BP IN THE UK AND INDIA......................................................................3
SOCIAL FACTORS AFFECTING BP IN THE UK AND INDIA.....................................................................4
ADAPTING BUSINESS ACTIVITIES TO SUIT THE ENVIRONMENT.........................................................6
EVALUATION AND RECOMMENDATIONS.........................................................................................10
CONCLUSION..................................................................................................................................14
REFERENCES....................................................................................................................................14
U1 [P6, M3, D2] 1
, BTEC Level 3 Extended Diploma in Business
Introduction
This report aims to describe how political, legal and social factors impact upon BP’s
business activities in two contrasting environments which are those of the UK and India. It
will further analyse the company activities that have been adapted as a result of these
factors in both countries and justified recommendations will be made in regards to future
changes in economic, legal, political and social aspects.
Political factors affecting BP in the UK and India
Political factors are government policies and their administrations which have the potential to
influence a business. Business operations can be impacted as a result of political factors, as
they can require or prohibit the company to carry out certain activities. The political decisions
made in both countries therefore have a crucial influence in many areas of oil and gas
industry.
United Kingdom: In the United Kingdom, a large company like BP is subject to different
types of taxes due to being in the particular industry. Taxes on oil must be paid before any
dividends, as soon as the profit levels for the year have been determined.
The first type of tax that companies are subject to is Normal Corporation Tax, which is
applied on the profits from their downstream segment. These activities include BP’s global
manufacturing and marketing operations within three businesses: fuels, lubricants and
petrochemicals, taxed at 20%. They are expected to fall to 19% in 2017 and reduce even
further to 17% in 2020.
The second one is Ring Fence Corporation Tax (RFCT), applied to BP’s upstream segment
responsible for activities in oil and natural gas exploration, field development and production,
as well as midstream transportation, storage and processing. It also includes marketing and
trading of natural gas. The rate of RFCT is 30%, but there is another tax regime called
Supplementary Charge (SC) which is charged at 10% (a new rate, recently falling from
20%). These two taxes added make the effective rate that BP needs to pay, which is 40%.
Up until January 2016 there was a third type that oil and gas companies had to pay, called
the Petroleum Revenue Tax (PRT). The sector was facing great difficulties because of low oil
prices, especially in the North Sea offshore industry, where the plunge led to thousands of
people losing their jobs. Crude was standing at a little over $40 as compared to $115 a
barrel in 2014, which led the government to decide to cut Petroleum Revenue tax from 50%
to 10% in 2015 as an attempt to boost efficiency and help companies. However in 2016, in
an attempt to maintain industry interests in the future of the UK’s oil reserves, it was decided
that PRT should be effectively abolished and is now 0%.
All of these changes are relevant to BP and its operations. The company, which has huge
operations in the North Sea, will certainly benefit from lower taxes because their costs will be
reduced and they can offer higher dividends to shareholders or make bigger investments to
further ease the effects of falling oil prices. It should be noted however that even if corporate
tax for other businesses as whole goes down, BP would be unaffected because the oil
sector is charged differently.
U1 [P6, M3, D2] 2
