The UK Government appears to have learnt from its previous mistakes in that there are fortunately no surprises for the oil & gas sector in the budget announced today.
As a follow on from recent activity, the main item of focus is the UK Government’s commitment to working together with the new oil & gas body – which is being established following Sir Ian Wood’s report – to review the fiscal regime as it applies to the UK Continental Shelf.
The aim of this review will be to ensure the maximum economic recovery of reserves as the basin matures. Initial conclusions are to be announced in the Autumn Statement 2014, which is usually made in late November or early December.
Another major announcement which is welcome is the review of tax incentives for high pressure high temperature clusters, on which the government will consult with the aim of introducing the new incentives in the Finance Bill 2015. It is hoped that these will encourage investment and greater collaboration around these clusters.
A number of other tax incentive measures, announced in the Autumn Statement 2013, such as extending the Ring Fence Expenditure Supplement, extending Reinvestment Relief in relation the chargeable gains and extending the scope of the Substantial Shareholding Exemption, will also be introduced.
Following discussion with the industry, the government has reviewed the arrangements announced in relation to bareboat chartering in its Autumn Statement 2013.
The UK Government has not changed its approach on the issue of bareboat chartering other than to increase the amount of the cap deductible for intra-group lease payments from the previously announced 6.5% to 7.5%. A new ring fence will also be introduced to protect the resulting revenue.
In discussions with the government, industry had expressed concerns that this measure would make the drilling market less competitive with the potential consequence of reducing drilling activity.
Whilst the measures announced are less than the industry might have wanted, it is interesting that the impact of the arrangements will be reviewed after a year, indicating a desire on the part of the government to test the actual consequences and, potentially, amend them accordingly.
The increased awareness of the UK Government in relation to the issues facing the sector, and its willingness to consult on the fiscal measures it is taking and plans to take, can only be a good thing.
Clare Munro is head of oil & gas at Brodies LLP
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