By Johnston Carmichael’s head of tax, Susie Walker, and head of oil & gas, Graham Alexander
On the whole, this year’s Budget was good news for the O&G sector, with the UK Government accepting the recommendations of Sir Ian Wood’s report. However, the Bareboat Chartering changes announced in the Autumn Statement will, despite industry objections, take effect from April 2014, with a slight relaxation of the cap.
Key points for consideration:
• A new body will be created to encourage exploration and reduce decommissioning costs.
• From 1 April, the scope of substantial shareholding exemption (SSE) is being extended.
SSE applies when a company has a qualifying shareholding in another company, therefore exempt from corporation tax on gains made when selling that shareholding.
Companies will now be treated as having a substantial shareholding in a subsidiary for the 12 month period prior to the disposal, where that subsidiary is using assets for oil and gas E&P activity that have been transferred from other group companies, and where the other conditions are met.
• Reinvestment relief for pre-trading companies will come into force from 1 April – as announced in the Autumn Statement, gains will be exempt where an asset is disposed of in the course of oil and gas E&P activities, and the proceeds are reinvested in the UK and UKCS.
• Mineral extraction allowances – relief will be extended to include expenditure on seeking planning permission, so tax relief accelerated for such costs.
• The government will introduce a new allowance for ultra high pressure, high temperature clusters and consult on the detail. This is designed to encourage exploration in the central North Sea and provide a significant portion of UK gas demand.
• The Annual Investment Allowance (AIA) of £250k, due to expire at the end of 2014, will be extended and doubled through to end of 2015. This provides a 100% tax deduction for the cost of most plant and machinery (not cars).
• SMEs incurring losses when undertaking certain R&D activity can claim relief through tax credits by way of a cash sum paid by HMRC. This was increased in the Budget and from 1 April 2014, the rate of R&D payable tax credit will be increased from 11% to 14.5%.
• Bareboat chartering – to address concern that profits are being shifted outside the UK tax net through charter agreements, a cap is to be introduced on the level of deduction for those charters to companies that provide drilling services or accommodation services on the UK Continental Shelf.