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North Sea firms paying £19m daily to UK Gov as windfall tax comments deemed ‘unwise’

© PAnorth sea windfall tax
Chancellor Rishi Sunak.

North Sea oil and gas firms contributed more than £1.7 billion to the UK Government’s coffers in just 90 days, new figures have revealed.

Research carried out by Aberdeen & Grampian Chamber of Commerce (AGCC) has found that offshore operators and licensees have been paying over £19 million in tax a day since the turn of the year.

And the Treasury has already banked £1.5bn more in the first three months of 2022 than it did over the same period in 2021.

Moreover EY’s Derek Leith, one of the world’s leading energy tax experts, claims tax revenues from the North Sea could now top £10bn in the year ahead.

Windfall tax not ruled out

It comes after Chancellor Rishi Sunak threatened yesterday that “nothing is ever off the table” with regards to an oil and gas windfall tax.

That is despite him repeatedly opposing the measure and opting not to hit the sector with a levy in his recent Spring Statement, despite pressure from opposition benches.

Mr Sunak said a windfall tax is something he would “look at” if companies don’t invest their extra cash in the UK’s energy supplies.

north sea windfall tax © PA
Chancellor Rishi Sunak.

Many have called for Westminster to raid the profits of North Sea companies amid soaring oil and gas prices and fears about the cost of living.

Labour has estimated that such a measure would raise £1.2bn over the course of 2022, cash that could be used to ease the pressure on households and businesses.

Breaking down the figures

Between April 2021 and March 2022, offshore companies paid just over £3bn in tax, according to data from the Office for National Statistics (ONS).

That is a 586% increase on the previous 12 months, and is the highest level of tax paid by the industry since 2013/14.

Looking at the three months from January to March this year in isolation, the industry paid taxes of £1.7bn in just 90 days – up 670% on the same time last year.

Figures from the Office for Budget Responsibility (OBR) show that Treasury takings from the North Sea are expected to jump from £3.1bn in 2021/22 to £7.8bn in 22/23.

And the public body has more than doubled its previous estimates for the fiscal years ending March 2023 to 2027, now predicting North Sea corporation tax to hit £21.4bn.

AGCC Ducatus Asco appointments © Supplied by Aberdeen and Grampia
Ryan Crighton

Ryan Crighton, policy director at AGCC, said: “We have said repeatedly that the windfall tax on North Sea profits is a blunt instrument that will achieve little apart from making the North Sea – already one of the world’s most mature basins – less attractive to investors.

“That would place jobs, tax revenues and our domestic energy security at risk, and also limit ability and appetite in invest in low the low carbon research and development we so desperately need. Perversely, this would likely drive-up energy bills and be entirely counter-productive.

“It is clear from these figures that the Treasury has benefited enormously already from higher energy prices – therefore offering targeted support to consumers and businesses is already within its gift.”

£10bn on the cards

Mr Leith, global oil & gas tax leader at EY, says industry sources predict that the North Sea tax yield for 2022/23 may top forecasts and could hit £10bn.

© Supplied by (Photo: Richard Frew
Derek Leith, EY’s UK Tax Sustainability Leader.

He said: “If it reached £10billion, then that would be a £7.2billion increase from the 2020 forecast and be sufficient incremental tax revenues to fund the support to consumers that some opposition parties have called for.

“This endorses the industry view that the current tax regime, with a combined corporate tax rate of 40%, is the appropriate level of taxation for a mature oil and gas province, ensuring that HMT gets a fair share of incremental profits arising from higher commodity prices.

“To tinker with the regime where the past few years have seen such volatile commodity prices is unwise – particularly when the UK is more conscious of energy security and balance of trade issues, and where some of the companies active in the North Sea are making significant investments in the energy transition.”

What makes up UK oil and gas taxation?

Oil and Gas companies pay tax profits from production in UKCS at a rate of 40%, comprising both Ring Fence Corporation Tax plus a Supplementary Charge (RFCT/SC).

Separately, Petroleum Revenue Tax (PRT) is a tax on the profits from oil and gas production in the UK, but only applies to fields that were approved before 16 March 1993. These are known as ‘taxable fields’.

PRT was permanently zero-rated from 1 January 2016. It was not abolished because some companies still require access to their tax history for carrying back trading losses and decommissioning costs.

There has been a lot written in recent months about decommissioning tax reliefs claimed by North Sea firms as the basin matures and assets reach the end of their working life. Decommissioning is a deductible expense for both RFCT/SC and for PRT.

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