Chancellor George Osborne took the floor yesterday for what is the last Autumn Statement before the next general election, and probably the current Government’s final opportunity to impact the economy.
But given the fiscal position the Government finds itself in with the budget deficit remaining high and with tax revenues lower than expected, was the Chancellor able to deliver any December cheer for the oil & gas industry?
Well, we definitely saw a number of positive items. The Government restated its support for both the onshore and offshore oil & gas industries, with a mixture of tax and other incentives such as the allocation of £31m to fund the creation of a world class sub-surface research test centre through the National Environmental Research Council.
From a tax viewpoint, the main news is the reduction from 1 January 2015 of the Supplementary Charge paid by oil & gas production companies from 32% to 30%. While this will be welcomed, many were hoping for the Supplementary Charge to be returned to the 20% rate in place prior to March 2011. Exploration activities are also being encouraged with the extension of Ring Fence Expenditure Supplement for up to 10 years instead of the current six, as well as a new Cluster Allowance, granting additional tax relief for technically challenging fields.
These measures are aimed at encouraging exploration in the UK Continental Shelf which is currently at an all-time low.
It is worth noting that further oil and gas industry tax measures are due to be announced in Aberdeen today.
Innovation has received another boost with the Research & Development reliefs increasing for both SMEs (increase from 220% to 230%) and large groups now being able to claim an additional 11% relief up from the previous 10%- both increases are effective from 1 April 2015.
Other welcome measures include the increase in the personal allowance by £100 to £10,600, with the benefit of this increase being passed onto to basic and higher rate taxpayers, i.e. those with top levels of tax at 20% or 40%.
Of interest to Scotland will be the UK’s slab tax Stamp Duty being revamped in line with the Scottish Land and Buildings Transaction Tax as the Chancellor moves to eliminate market distortions, leading to a fairer payment basis on the purchase of residential property. Likewise, the Scottish Government will be closely following the devolution of Corporate Tax to Northern Ireland – a tax that was not included in the Smith Commission Agreement.
Willo Renehan is a Corporate Tax Partner based in Aberdeen. He has been with PwC for 18 years and advises oil & gas companies on tax and business matters.