The Coalition Government’s “new approach to tax policy making” promised an era in which the tax policy process would be seen as a competitive advantage of the UK.
Changes would be preceded by consultation and advanced scrutiny of the draft legislation, delivering more appropriate and better framed tax law.
Under this vision, the Autumn Statement has become a significant event in the tax calendar, with the many announcements of policy setting the scene for the forthcoming Budget.
The Autumn Statement was made by the Chancellor on December 5, delayed a day from the original timetable due to Prime Minister David Cameron’s visit to China.
We expected draft legislation with regard to onshore shale gas development and we weren’t disappointed.
The announcement of a new onshore allowance, set at 75% of capital invested and relievable like field allowances against profits chargeable to supplementary charge, was what industry had hoped for.
In addition, there were welcome changes to reinvestment relief so that companies who have not yet commenced a petroliferous trade can qualify for the relief (albeit the draft legislation needs some work), and to extend the favourable interaction between exit charges and the substantial shareholdings exemption to such companies.
Broadly, that means that companies in the exploration and appraisal phase can enjoy the same reliefs as companies carrying on a ring fence trade, and it should enable assets to change hands without any frictional tax costs.
Somewhat unusually, there was also a statement that HMT would re-examine certain anti-avoidance legislation introduced in Finance Act 2013 to understand how its adverse impact on commercial transactions within the UK oil and gas sector can be removed or mitigated.
This is a welcome announcement and one which industry will hope leads to amendments to these rules.
Regrettably, despite the new approach to tax policy making, it appears that it is nigh on impossible for the Chancellor to deliver a Budget or Autumn Statement without there being something of a surprise sting in the tail.
On this occasion it was a fairly innocuous looking e-mail from HMRC indicating that legislation will be published in January 2014 which would restrict the tax deduction on intra-group bareboat charter payments, and introduce a ring fence for oilfield service companies in relation to the provision of such services.
The fact that such contracting arrangements have been in place in the UKCS for over 20 years seems to be considered irrelevant, as does the fact that in many instances HMRC has examined these arrangements and formally agreed with the taxpayers that the bareboat charter payments are set at a level commensurate with 3rd party arrangements.
While this is not the place to discuss the merits or otherwise of this approach, it is a timely reminder that government doesn’t always fully appreciate the wider implications of proposals that seek to address perceived inadequacies in the taxation of the supply chain.
It seems fairly self-evident that the impact of this change, along with that of the changes to the employer national insurance rules as they pertain to non-resident employers, will largely be passed on to the end user – in this case the upstream companies.
At a time when the UKCS is finding it increasingly difficult to compete for capital investment, these consequential impacts on the cost base for the supply chain should not be underestimated.
Derek Leith is senior partner at EY in Aberdeen