BP will book $10bn tax credit against costs of cleaning up Gulf oil spill, meaning US and UK governments will lose out

BP is poised for fresh controversy after it emerged today that the UK Treasury will lose hundreds of millions of pounds as a result of the oil clean-up in the Gulf of Mexico.

The cost of the clean-up has pushed BP into the red, meaning the oil company will be able to book a near-$10bn (£6.5bn) tax credit, slashing its tax bill in the US and Britain. The loss comes on top of a plunge in tax revenues after BP halted its dividend payouts to shareholders.

The news will dismay politicians in Westminster, since the coalition government needs all the tax revenues it can get as it introduces austerity measures to deal with the deficit. The majority of the tax credit is likely to relate to the US, but the exchequer is also likely to lose out badly. BP paid $8.4bn of corporate taxes last year, with roughly £930m going to the UK government. Tax experts reckon it paid a similar amount in US taxes.

While the spill will reduce the level of BP's corporate taxes, the news comes on top of the hundreds of millions lost to the exchequer in the form of lost dividend taxation.

Under fierce political pressure from Washington, BP scrapped its lucrative payouts to shareholders this year and there is currently no plan to reinstate payments.

BP announced today that it is making a $32.2bn provision for the cost of the spill caused by the explosion and subsequent sinking of the Deepwater Horizon drilling rig in April.

That pushed BP's second-quarter results into a record loss of $17bn, compared with a profit last year of $3.1bn.

The company explained, however, that the net impact on BP's bottom line will only be $22bn because the company will be able to record a $9.9bn tax credit. BP's UK tax bill will also be reduced, the firm added.

Both the US and UK governments receive hundreds of millions of dollars from the company in tax payments each year. News that BP will be able to write off against tax the cost of plugging the well, cleaning up the spill and compensating the thousands of people who have been affected is likely to anger politicians of all political hues.

Only the fines that might be imposed by the US authorities would definitely not be tax-deductible, according to tax experts.

Three years ago, aircraft manufacturer Boeing flew into a storm of protest when it sought to write off against tax a $615m fine levied by the department of justice that settled an investigation into the improper hiring of a Pentagon official and the theft of data from Lockheed Martin Corporation. The fine was levied in order for Boeing to avoid criminal charges. Three Republican senators wrote to the US attorney general at the time to say that allowing Boeing to deduct payments to the government "would be unacceptable".