George Osborne’s continued assault on tax avoidance will cost the oil and gas industry hundreds of millions of pounds.
The chancellor confirmed measures to close tax loopholes which allowed companies to avoid national insurance (NI) contributions for thousands of offshore workers.
But he also unveiled plans to root out companies who lease offshore equipment – such as rigs – through associate firms in tax havens to cut tax.
Together the measures will cost the industry more than £600million.
And there was also a surprise crackdown on contractors – the one man bands and umbrella companies which are the lifeblood of the industry.
It is understood to be looking to tackle people with their own company who pay themselves a dividend instead of a salary to cut their tax bill.
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There was scant detail yesterday, but experts fear it could be another tax blow for the sector.
For decades, workers spending a certain amount of time offshore, whether on vessels or fixed platforms, have been classed as mariners and therefore exempt from NI.
But from April, the government will scrap the rule and demand that employers pay NI contributions for all staff on the UK Continental Shelf.
Employers which base themselves outwith the UK to avoid tax – despite sending staff to work in UK waters – will also have to pay.
Changes to increase the tax burden on UK contractors supplying rigs, FPSOs and other equipment to operators have been criticised.
Martin Findlay, tax partner for KPMG in Aberdeen, said: “Pledging continued investment in and support of the North Sea oil and gas sector with one hand while announcing this unexpected new measure, which will affect drilling companies, will raise significant uncertainty throughout the industry.
“Drilling companies face the prospect of significantly larger tax bills, which will have to be passed through the supply chain to producers and energy providers. It is bound to negatively affect the competitiveness of the UK as opposed to other oil and gas jurisdictions.”
Derek Leith, head of oil and gas taxation at Ernst & Young, added: “Upstream companies will face increased costs which could lead to a migration of some of these assets to other jurisdictions where the tax treatment is more favourable – a blow to mature basins such as the UKCS which is already facing difficulties competing for capital investment against other countries where prospectivity is higher.”
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