2022 brought a huge amount of turbulence: from the energy crisis triggered by war in Ukraine to legislative U-turns and windfall tax increases creating uncertainty over investments in the North Sea.
The flexible workforce will be crucial in helping energy companies navigate these ongoing challenges in 2023, yet the fierce competition for talent that has dogged that last year looks set to continue.
A bumpy start
The sector would benefit from a legislative framework which enables business to engage contractors quickly and compliantly. Unfortunately, what we have is the latest iteration of the off-payroll working rules, known as IR35, which make hirers responsible for tax compliance and payment.
This year saw the final stage implementation of the new rules introduced in 2021. April concluded HMRC’s ‘soft-landing’ of the legislation with the Government moving into enforcement mode.
At the start of the year, however, many organisations were still struggling with the complexity of the legislation. The oil and gas sector in particular was singled out by HMRC, which anticipated enforcement activity with letters written to a number of companies in January.
Damning reviews
A House of Lords review, published in February, pointed out a numbers of flaws with the new rules, criticisms that were echoed by further reports from the House of Commons Public Accounts Committee and the National Audit Office.
These complexities, they said, led to some companies putting blanket bans on the use of contractors to reduce their risk of being caught out by the rules, effectively restricting their access to a pool of highly skilled workers.
The Government’s own Check Employment Status for Tax (CEST) tool was highlighted as difficult to use – a criticism proven by a series of multi-million-pound tax bills for Government departments that had relied heavily on it’s use without expert guidance.
The good news is that the looming April deadline spurred positive action. We saw a rise in energy companies requesting mock audits of their processes, addressing potential pain points ensuring confidence in their IR35 solutions and being prepared for HMRC enquiries.
A turbulent autumn
Liz Truss and Kwasi Kwarteng’s bonfire budget included the surprise announcement that the IR35 legislation would be repealed. Despite the investment many companies had made in compliance, this brought about a sigh of relief for many in the sector. But it didn’t last long. Before businesses and contractors had an opportunity to digest the news, Jeremy Hunt stepped in to halt the repeal, while introducing a windfall tax on oil and gas producers.
Investment and uncertainty in 2023
2023 holds a lot of potential for the industry: from offshore decommissioning to North Sea exploration, new investments by Shell and a drive for renewables announced in the budget. However, the uncertainty continues. Several North Sea investments are currently under review as a result of the windfall tax.
With many projects yet to get the green light, access to the flexible workforce will be more important than ever. Key to this will be compliance with the off-payroll working rules. By offering compliant contractor roles, energy companies and their suppliers can adapt to quickly scale their workforce up or down to meet requirements.
Matt Fryer is a Chartered Tax Advisor with over 20 years’ experience of advising on tax planning and compliance. He has been with Brookson since 2009, having previously worked for Big 4 accountants, KPMG and PwC.
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