Budget 2015: North Sea given tax breaks
18 Mar 2015
North Sea oil & gas was today handed tax breaks including a 10% cut in the supplementary rate by chancellor George Osborne in his final budget of this parliament.
Following appeals by the UK oil & gas industry that the current low oil prices meant that North Sea exploration was collapsing, Osborne agreed to cut supplementary tax rate from 30% to 20%, and to backdate this to the start of the year.
This cut follows a 2% cut to the supplementary rate in the Chancellor’s autumn statement last year.
The reduction of the supplementary tax rate to 20% will give greater security to the 380,000 jobs in the sector
Law firm partner Uisdean Vass
In addition to the supplementary rate cut, today’s budget also confirmed the rate of Petroleum Revenue Tax (PRT) paid on older oil and gas fields will also be reduced from 50% to 35%.
The changes come as many firms in the oil & gas supply chain face the prospect of redundancies and even insolvency due to the high operating costs in the North Sea.
“The UK Oil & Gas industry has been hit hard in recent months by record-high investment costs combined with a slump in global oil prices,” said Uisdean Vass, partner at law firm Bond Dickinson.
“The reduction of the supplementary tax rate to 20% will give greater security to the 380,000 jobs in the sector.”
In addition to announcing new tax cuts, Osborne also confirmed implementation of a simplified cost-based Investment Allowance, first announced in the 2014 Autumn Statement .
The introduction of a single basin-wide Investment Allowance is designed to reduce the effective tax rate for companies investing heavily in the UK Continental Shelf (UKCS).
“At last there is some positive news for the UK oil and gas sector with the reversal of the tax increase of 2011 and a move towards simplification of the regime with the introduction of a cost-based Investment allowance,” said EYhead of oil and gas taxation at EY Derek Leith.
“The PRT rate reduction is an additional boost for the most mature North Sea fields,which have been taxed at a marginal rate of 81% despite falling production and rising integrity costs. As these fields typically host key pieces of North Sea infrastructure lowering the overall tax rate for these fields is vital.
“While some in industry may have hoped for a more significant cut in the headline rate there was little likelihood of that happening, particularly as the Investment Allowance will further reduce the effective corporate tax rate for those companies continuing to invest in the sector.”
Osborne claimed that all of his announcements on the North Sea would reduce the tax burned on the North Sea by £1.3 billion per year, and would increase oil production by around 15% by 2019.
