The UK Government is planning a new £100million tax raid on the oil and gas industry – once again threatening investment in the North Sea.
Westminster has announced a raft of measures to close tax loopholes which let companies avoid national insurance (NI) contributions for thousands of offshore workers.
But last night leading accountants warned the changes could cost firms millions – potentially crippling investment in the sector and forcing some companies out of business.
The warning came hours after Chevron joined Statoil in delaying a major new UK field amid fears about costs.
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 up.
Industry body Oil and Gas UK said the changes would hit a number of firms.
And top accountants KPMG believe the changes will cost the industry much more than the £90million being predicted by the Treasury, which came under fire for a disastrous tax raid just three years ago.
Martin Findlay, tax partner at KPMG in Aberdeen, also has major concerns about the speed the new rules are being brought into effect.
“Oil and gas companies will now have to review how they structure future contracts, which will likely see costs passed along the supply chain,” he said.
“Those on fixed supply contracts will, in the medium term at least, have to find ways to absorb the increased expense, or recover this from their customers, including the oil majors. This will put even more pressure on margins which are already subject to volatility. Companies with long-term contracts and an inability to change pricing structure may face some drastic choices including ceasing operations.
“The implications will be widespread and may far exceed the government’s expectation of £90million of potential costs to the oil and gas industry. It remains to be seen what the final macro-economic impact is.”
Accountants and business advisers BDO say the plans could threaten future investment. Brian Lovie, BDO director of employment taxes, said: “Oil and gas companies have historically been able to obtain services in such a way that they had no requirement to pay UK employer’s NIC. At a rate of 13.8% the benefit is substantial when applied to the thousands of people employed offshore.
“Although the proposals could impact any UK business using employment agencies or outsourcing services involving UK resident employees where an offshore intermediary is involved, the oil and gas industry is expected to be a major target for the government.
“A dip in the oil price or new technologies such as fracking, which can offer greater flexibility and increased profitability, may make the oil and gas exploration companies think again about the viability of the North Sea if they have to add 13.8% to their UK employment costs.
“With capital investment in the North Sea expected to reach £13billion this year, there is clearly a lot at stake. It is worth at least considering whether the potential increase in tax revenue for the UK Treasury from this latest challenge to perceived UK tax avoidance will be worth it if companies reduce their investment in the sector.”
Oil and Gas UK said the changes would impact on “a number of our members”. A spokesman added: “This is an issue for the affected companies to address individually.”
Last night the Treasury dismissed concerns about the new rules – saying they would create a level playing field for all firms.
“This government is determined to tackle tax avoidance and to ensuring compliant businesses are not disadvantaged by those com-panies using offshore intermediaries as a way to avoid employer national insurance contributions (NICs) and other employment obligations,” a spokesman said.
“The changes we are making will mean that, from April 2014, there is a level playing field for compliant UK businesses using the UK’s flexible labour market and will not be undercut by those seeking to avoid tax and NICs.
“We are committed to supporting investment in oil and gas, a vital sector that provides jobs and growth across the UK. Our introduction of new and extended field allowances, and provision of increased certainty over decommissioning relief has resulted in greater investment in the North Sea.”
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