The UK Government has been accused of adding to the uncertainty surrounding the tax regime for North Sea operators after restricting relief on the cost of decommissioning.
HM Treasury confirmed yesterday that decommissioning relief would be limited to 50%, despite the government’s shock decision to increase the total tax rate for oil and gas firms to 62% earlier this year and raid £10billion from the industry.
In the past, decommissioning relief has been in line with the total levy imposed on operators.
Mike Tholen, economics director at industry body Oil and Gas UK, said the move would add £3billion to companies’ decommissioning costs. He said: “We knew this was coming, but I cannot say it is completely welcome because it is contrary to the convention we have had for the past 40 years.
“We need certainty over decommissioning costs in the long term, but this is making the industry edgy that more changes may come in the future.”
Mr Tholen added that discussions between industry and the Treasury on improvements to decommissioning relief were continuing, however.
He said: “We are doing a lot of work with the government to try to sort out the decommissioning issue so both sides are clear on the rules. We are keen to take those discussions through to the next Budget and I am optimistic something can be announced then.”
Derek Leith, Aberdeen-based oil and gas tax partner at professional service firm Ernst and Young, said confirmation of the decommissioning ceiling was disappointing.
He added that the industry hoped talks with the government would bear fruit.
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