The Treasury has given more details of changes to the oil and gas fiscal regime first outlined in the Autumn Statement, which include introducing a single basin-wide ‘investment allowance’ designed to reduce the effective tax rate for companies investing in the future of the UK Continental Shelf and simplify the tax regime
On a visit to Aberdeen Danny Alexander, chief secretary to the Treasury, said the government has also committed to boosting offshore exploration through financial support for seismic surveys in under-explored areas of the North Sea.
In the Autumn Statement the Chancellor announced an immediate cut in the rate of the Supplementary Charge from 32% to 30% from 1 January 2015, along with a new ‘cluster area’ allowance for high pressure, high temperature projects and an extension to the ring-fence expenditure supplement to ten years.
Alexander said the government plans to open discussions with the newly established Oil and Gas Authority on ways to remove fiscal barriers to extend the life of critical infrastructure, in addition to providing access to relief on the decommissioning of assets.
Derek Leith, senior partner in Aberdeen and head of oil and gas taxation at EY, said: “The new proposals will require further work before implementation but clearly seek to support exploration; relieve some of the tax burden from new investment when the headline tax rate is still high; and rationalise the complexities of the current system in relation to infrastructure and decommissioning.
‘Provided that these measures can be implemented quickly, and a further tax rate reduction can also be delivered, the government has taken some critical steps to protecting the longevity of the oil and gas industry in the UK. However, with the low oil price making the need for reform acute, there is absolutely no room for complacency.’
Roman Webber, partner and head of oil & gas tax at Deloitte, agreed, saying: ‘Much of the evidence put forward by industry during the summer has clearly been taken on board. However, many will question whether the announcements, and other changes announced in the Autumn Statement, will provide enough immediate support and reassurance to the industry at a time when the oil price has fallen rapidly and companies face decisions about where in the world to invest scarce resources.
'Both the general election in 2015 and the creation of the new Oil & Gas Authority could delay any concrete measures until at least 2016.’
