The UK fiscal regime is an example of the tripartite (OGA, HMG and Industry) approach working together to create value for investors.
In support of the overall government objective of maximising the economic recovery of the UK's oil and gas reserves, the government aims to:
· Encourage investment in and production from the UK and UK Continental Shelf (UKCS)
· Strike the right balance between oil producers and consumers, and to ensure fairness to taxpayers
The dominant drivers of investment and, hence, ultimate recovery levels are underlying geology and future oil and gas prices and development costs.
However, Government does have a crucial role to play in ensuring that the regulatory and fiscal regimes help deliver the best possible future for the UKCS.
In 2014 HM Treasury (HMT) published the Driving Investment Plan which includes the principles HMT will follow when developing UKCS fiscal policy:
· To be consistent with the objective of maximising economic recovery as new projects become ever more marginal, the overall tax burden will need to fall as the basin matures.
· When making judgements about fiscal policy, the government will consider the wider economic benefits of oil and gas production, in addition to revenues.
· The government’s judgement of what constitutes a ‘fair return’ will take account of the global competitiveness of commercial opportunities in the UK and UKCS, and take account of both commodity prices and costs.
Since it was published in 2014, each subsequent Chancellor has re-confirmed their commitment to these principles.
In 2018-19 a transferable tax history (“TTH”) mechanism was introduced for UK oil and gas producers, for deals that complete on or after 1 November 2018. This will allow companies selling UKCS oil and gas fields to transfer some of their tax payment history to the buyers of those fields.
The buyers will then be able to set the costs of decommissioning fields at the end of their lives against the TTH, giving greater certainty that they will be able to access tax relief on their decommissioning costs
HM Treasury Budgets 2014-2017
Spring Statement 2019
The Chancellor of the Exchequer, Philip Hammond presented his Spring Statement to Parliament on Wednesday 13 March 2019
October 2018 Budget
The Chancellor of the Exchequer presented his Budget to Parliament on Monday 29 October 2018
Autumn Budget 2017
The Chancellor presented the Autumn Budget to Parliament on 22 November 2017. As announced in the Autumn Budget, the government will introduce a transferable tax history (TTH) mechanism for UK oil producers for deals that complete on or after 1 November 2018.
This will allow companies selling North Sea oil and gas fields to transfer some of their tax payment history to the buyers of those fields. The buyers will then be able to set the costs of decommissioning the fields at the end of their lives against the TTH.
This will level the playing field between buyers and sellers of oil and gas fields, providing new investors in the UK Continental Shelf with certainty on the tax relief available for the decommissioning costs. This should encourage new entrants and fresh investment for a basin that still holds up to 20 billion barrels of oil.
Draft legislation will be published in spring 2018 for technical consultation, following which the government intends to legislate for TTH in Finance Bill 2018 to 2019, with TTH applying to deals where the transfer of the licence has been approved by the Oil & Gas Authority on or after 1 November 2018.
The Autumn Budget also announced that the government will publish a technical consultation on allowing a petroleum revenue tax (PRT) deduction for decommissioning costs incurred by a previous license holder. It will run to the same timeline as the TTH work with draft legislation published in spring 2018, and legislation in the Finance Bill 2018-19.
Spring Budget 2017
On 8 March 2017, the Chancellor presented the Spring Budget to Parliament. The Government announced it would publish a discussion paper on tax treatment of late-life North Sea oil and gas assets, considering the tax issues on the transfer of such assets to new investors and whether any changes to tax rules could facilitate transfers and support the Government and OGA's aim of maximising economic recovery.
The paper, 'tax issues for late-life oil and gas assets' was published on 20 April 2017 and consultation closes at 11:45pm on 30 June 2017. The Government has also established a panel of upstream oil and gas experts to enable a detailed debate on the issues identified in the paper.
Autumn Budget 2016
On 23 November 2016, the Chancellor presented his Autumn Statement to Parliament – section 5.12 recommitted the government to the Driving Investment Plan to ensure a stable tax regime that maximises economic recovery from the UKCS.
Summer Budget 2015
The Chancellor gave his Budget to Parliament on 8 July 2015.
The government will broaden the application of the basin-wide investment and cluster area allowances to support investment on the UKCS. The definition of investment expenditure will be extended to include certain discretionary non-capital spend and long term leasing of production units. The allowance exempts a portion of a company’s profits from the Supplementary Charge.
The government believes in making the most of the UK’s oil and gas resources, to this end, the government expanded the North Sea investment and cluster area allowances to include additional activities which will maximise economic recovery.
Autumn Budget 2014
The Chancellor presented the Autumn Statement on 3 December 2014.
To ensure the UKCS continues to attract investment and remove barriers at all stages of the production life cycle, the government set out major reforms to the oil and gas fiscal regime. As part of these reforms the government will:
- implement an immediate 2% reduction in the rate of the Supplementary Charge, from 32% to 30%, taking effect on 1 January 2015, and will aim to reduce the rate further in an affordable way, to encourage additional investment and drive higher production, sending a strong signal that the UKCS is ‘open for business’
- extend the ring fence expenditure supplement to 10 years for offshore oil and gas activities to support investment by companies whose expenditure exceeds their production income, aligning the treatment of offshore and onshore projects
Summer Budget 2014
The Chancellor presented the 2014 Budget on 19 March. It announced a new allowance for ultra high pressure, high temperature (HPHT) oil and gas projects, and a commitment to working with the Oil and Gas Authority (OGA) to ensure that the UK’s tax regime remains competitive.
The HPHT allowance will exempt a portion of a company’s profits from the supplementary charge. The amount of profit exempt will equal at least 62.5% of qualifying capital expenditure a company incurs on these projects.
The government will also make the following changes, which will have effect from 1 April 2014:
- extend reinvestment relief to prevent a chargeable gain being subject to a corporation tax
- charge where a company sells an asset in the course of exploration and appraisal activities and reinvests the proceeds in the UK or UKCS
- extend the scope of the Substantial Shareholding Exemption to treat a company as having held a substantial shareholding in a subsidiary being disposed of for the 12 month period before the disposal, where that subsidiary is using assets for oil and gas exploration and appraisal that have been transferred from other group companies