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Onshore News: UK Pledges Oil and Gas Stimulus Package

Posted on 20.03.2015 - 10:36 EDT in ONSHORE NEWS by DT_Amanda

The UK Budget 2015 delivered on Wednesday contains assistance to support the local offshore oil and gas sector.

In its Autumn 2014 Statement, the government confirmed that it would introduce an immediate two percent reduction in the rate of the Supplementary Charge, a tax on profits from oil and gas production in the UK and UK Continental Shelf. The reduction from 32 percent to 30 percent came into effect from January 1, 2015. As a result of the 2015 Budget, this will now be further reduced to 20 percent.

Moore Stephens tax partner Sue Bill says the measures are good news for the offshore oil and gas sector operating in the UK or UK Continental Shelf.

“A new Investment Allowance has been announced to stimulate investment at all stages of the industry life- cycle, simplifying the existing system of offshore field allowances, and providing investors with greater certainty. The government also announced that it will reduce Petroleum Revenue Tax from 50 percent to 35 percent, and will provide £20m of funding for a program of seismic surveys on the UK Continental Shelf.

“The budget also announced that the notification requirement under draft legislation in the Finance Bill 2015 aimed at minimizing aggressive tax planning by multinational enterprises is to be narrowed. This is welcome news. There are, in addition, some changes to the detailed rules. The Budget also included an announcement that there will be amendments to the rules for companies subject to the oil and gas regime.”

As announced in the Autumn Statement, the government will extend the ring-fence expenditure supplement from six to ten accounting periods for all ring-fence oil and gas losses and qualifying pre-commencement expenditure incurred on or before 5 December 2013. An allowance was also introduced in the Autumn Statement to support the development of high-pressure, high-temperature projects. From December 3, 2014, an amount of profits equal to 62.5 percent of the qualifying capital expenditure a company incurs will be exempt from the Supplementary Charge.

The budget also introduced changes to legislation announced last year which is of interest to the shipping and offshore maritime sector. The Finance Bill 2015 contains a new exemption from withholding tax on interest on qualifying private placements (a type of unlisted debt) to help the provision of new finance for businesses and infrastructure projects, which may mean that it is easier for companies to raise finance without incurring withholding tax liabilities of up to 20 percent on interest payments, or dealing with the administration involved in claiming treaty relief. Following consultation, it appears that the requirement that the security must have a minimum term of three years will now be removed. 

Changes will also be made to the exemption from UK capital gains tax for tangible moveable chattels which are wasting assets and which have never qualified for capital allowances. In future, the exemption will not apply if the asset has not been used in the owner’s business. This could mean that the exemption is no longer available where a company sells a vessel on delivery without using it for trading purposes.    

Bill concludes: “The measures just announced, together with those unveiled last year, underline the extent to which the UK government understands the strategic importance of the offshore oil and gas sector to the UK economy. They are good news for the offshore maritime sector, although it remains to be seen whether, in the light of the recent dramatic fall in oil prices, they will be sufficient to provide the industry with the boost it needs at a difficult time.”

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