Yesterday’s Summer Budget – the first wholly Conservative Budget in almost two decades – had no surprise announcements for the oil and gas sector, however the Chancellor highlighted that measures announced in March would be going ahead. This included a new “simple and generous” tax allowance for investment and a rate cut for both Petroleum Revenue Tax and the Supplementary Charge.
The Chancellor announced a broadening of the basin-wide investment and cluster area allowances. Draft legislation is awaited and the measures are expected to cost the government £30million over the course of this Parliament. Ring Fence Corporation Tax payers will not benefit from today’s announcement of further Corporation Tax reductions for UK corporates. This will however benefit many in the supply chain, with rates reducing to 18% from April 2010.
One further point of note from today’s Budget was a change to the Annual Investment Allowance, which is currently set at £500,000 and was due to fall to £25,000 at the end of 2015. Mr Osborne made the welcome announcement that this would now reduce to £200,000, and this will remain the case for years to come.
The definition of expenditure will now include “certain discretionary non-capital spend and long-term leasing of production units”, which will help companies to protect some of their profits from the Supplementary Charge.
In terms of further announcements, the abolition of permanent non-dom status is also likely to attract interest, and potentially concern, for some oil and gas workers who are mobilised internationally.
The changes, which will come into place in April 2017, will see those who have lived in the UK for 15 of the last 20 years lose the right to claim the non-dom tax status and hence the ability to ring fence their non-UK income overseas. This is unlikely to adversely affect most foreign personnel working in the UK oil and gas sector, owing to the limited timeframes that such workers are typically here.
Was this what the industry wanted? Not if the news from recent weeks is anything to go by. We are still feeling the pain of a new, lower oil price and with thousands of jobs still in question, further tax breaks would have been a sign of real commitment from our new UK Government. The mention of North Sea oil and gas was fleeting, and will have been noted by many.
Was this what the industry expected, however? From most, it probably was. March saw a significant but positive shake up for oil and gas, and although today’s announcements were much smaller in comparison, they are still progress in the right direction.
HM Treasury needs to continue consulting with industry, trade bodies and the new regulator, the OGA, to ensure that we quickly and effectively adapt to the new normal.
Richard Britten is a tax director at Johnston Carmichael.