Yearly Archives: 2010

30 Sep 2010

Income Tax

Taxable bands*

Year 2012/13£ per year% Rate
Basic rate£1 - 34,370Basic rate: 20%
Higher rate£34,371 - £150,000Higher rate: 40%
Additional rateOver £150,000Additional rate: 50%
Year 2011/12£ per year% Rate
Basic rate£1 - £35,000Basic rate: 20%
Higher rate£35,001 - £150,000Higher rate: 40%
Additional rateOver £150,000Additional rate: 50%
Year 2010/11£ per year% Rate
Basic rate£1 - £37,400Basic rate: 20%
Higher rate£37,401 - £150,000Higher rate: 40%
Additional rateOver £150,000Additional rate: 50%
Year 2009/10£ per year% Rate
Basic rate£0-£37,400
Basic rate: 20%
Higher rateOver £37,400Higher rate: 40%

*There is a 10p starting rate for savings income only. If an individual’s non savings taxable income exceeds the starting rate limit, the 10p starting rate for savings will not be available for savings income

22 July Emergency Budget

The Budget announced that, in 2011-12, the income tax personal allowance for under 65s will be increased by £1,000 in cash terms, taking it from £6,475 in 2010-11 to £7,475 in 2011-12. To ensure that the majority of higher rate taxpayers will pay the same total level of income tax and National Insurance Contributions (NICs) as previously planned, the Government will also reduce the basic rate limit for tax by £2,500, and the upper earnings and profits limits for NICs by £1,650, based on current estimates of the Retail Prices Index (RPI). Exact figures for the basic rate limit and higher rate threshold will be confirmed in the autumn.

Indexation of benefits and tax credits
The Government will use the Consumer Prices Index (CPI) for the price indexation of benefits and tax credits from April 2011. This change will also apply to public service pensions through the statutory link to the indexation of the Second State Pension. The Government is also reviewing how the CPI can be used for the indexation of taxes and duties while protecting revenues.
Income Tax Rates

 2009-102010-112011-12
Starting rate for savings10%10%10%
Basic rate:20%20%20%
Higher rate: 40%*40%40%40%
Additional rate**N/A50%50%
Basic rate on dividends (effective rate with tax credit)10% (0%)10% (0%)10% (0%)
Higher rate on dividends (effective rate with tax credit)32.5% (25%)32.5% (25%)32.5% (25%)
Additionalrate on dividends (effective rate with tax credit)N/A42.5% (36.1%)42.5% (36.1%)

*Over £37,400 for 2009-10 and 2010-11, over £34,900 for 2011-12.

**Over £150,000.

Personal and age-related allowances

£ per year (unless stated)2009-20102010-20112011-2012
Personal allowance (age under 65)£6,475£6,475£7,475
Personal allowance (age 65-74)£9,490£9,490£9,490
Personal allowance (age 75 and over)£9,640£9,640£9,640
Married couple's allowance** (age 75 and over)£6,965£6,965£6,965
Married couple's allowance** - minimum amount
£2,670
£2,670
£2,670
Income limit for age-related allowances£22,900£22,900£22,900
Blind person’s allowance£1,890£1,890£1,890
Capital gains tax annual exempt amount
Individuals etc.£9,600£10,100£10,100
Most trustees£4,800£5,050£5,050
Individual inheritance tax allowance£312,000£325,000£325,000
Pension schemes allowances
Annual Allowance£235,000£245,000£245,000
Lifetime Allowance£1,650,000£1,750,000£1,750,000

*From April 2010, the personal allowance will be gradually withdrawn for incomes over £100,000 at a rate of £1 of allowance lost for every £2 over £100,000 until it is completely removed.

** Available to people born before April 6 1935.  Tax relief for this allowance is restricted to 10%.

The capital gains tax (CGT) annual exempt amount increased in line with statutory indexation to £10,100 for the tax year 2009-10 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is increased to £5,050.

Every husband, wife, civil partner and child has his or her own £10,100 annual exempt amount.

For capital gains above the annual exempt amount the CGT rate for 2009-10 will continue to be 18 per cent.

Working and Child Tax Credits rates

£ per year (unless stated)2009-102010-11
Working Tax Credit#colpsan##colpsan#
Basic element£1,890£1,920
Couple and lone parent element£1,860£1,920
30 hour element£775£790
Disabled worker element£2,530£2,570
Severe disability element£1,075£1,095
50+ Return to work payment (16-29 hours)£1,300£1,320
50+ Return to work payment (30+ hours)£1,935£1,965
Childcare element of the Working Tax Credit#colpsan##colpsan#
Maximum eligible cost for one child£175 per week£175 per week
Maximum eligible cost for two or more children£300 per week£300 per week
Percentage of eligible costs covered80%80%
Child Tax Credit#colpsan##colpsan#
Family element£545£545
Family element, baby addition£545£545
Child element£2,235£2,300
Disabled child element£2,670£2,715
Severely disabled child element£1,075£1,095
Income thresholds and withdrawal rates#colpsan##colpsan#
First income threshold£6,420£6,420
First withdrawal rate39%39%
Second income threshold£50,000£50,000
Second withdrawal rate6.67%6.67%
First threshold for those entitled to Child Tax Credit only£16,040£16,190
Income disregard£25,000£25,000

As announced at the 2009 Pre-Budget Report, on 6 April 2010 all elements of the Working Tax Credit (WTC), apart from the childcare element, will increase by 1.5 per cent. The limits on eligible childcare costs in the childcare element remain at £175 for one child and £300 for two or more children. The proportion of childcare costs payable through the childcare element of WTC remains at  80 per cent. The disability elements of the Child Tax Credit will increase by 1.5 per cent. The family element and baby addition  remain unchanged.   As announced in  Budget  2009, the child element of the Child Tax Credit will rise by £20 above indexation in April 2010, an increase of £65 in cash terms. As announced   at   the   2009   Pre-Budget   Report,   the   threshold   for   receipt   of   the maximum   Child   Tax   Credit   will   rise   to   £16,190   reflecting   the   income   level   at   which   a   family   in receipt of the basic and couple or lone parent elements of WTC would have their entitlement to WTC tapered to zero, and the threshold for receiving maximum family element of CTC remains at £50,000. The withdrawal rate for the family element remains at 6.67 per cent, and for the rest of tax credits at 39 per cent.

22 July Emergency Budget

The Budget announced several changes to the Child and Working Tax Credit. Summarised below are the main changes coming into effect in April 2011. Full details of all changes are available in the Budget document.
The child element of the Child Tax Credit will increase by £150 above CPI in April 2011. The baby element of the Child Tax Credit will be removed from April 2011.
In addition, there will be changes to the thresholds and withdrawal rates as set out below.

Child and Working Tax Credits rates

£ per year (unless stated)2010-112011-12
Income thresholds and withdrawal rates
First withdrawal rate39%41%
Second income threshold50,00040,000
Second withdrawal rate6.67%41%
Income disregard25,00010,000

Child Benefit and Guardian’s Allowance rates from 6 April 2008.

£ per week2009-102010-11
Eldest/Only Child£20.00 (from Jan 2009)£20.30
Other Children£13.20 (from Jan 2009)£13.40
Guardian's Allowance£13.45£14.30

As announced at the Pre-Budget Report 2009, on 12 April Child Benefit and Guardian’s Allowance will increase by 1.5 per cent.

22 July Emergency Budget

From 2011-12, both rates of Child Benefit will be frozen for three years.

Pension schemes allowances

Standard Lifetime Allowance 
Tax YearAmount (£)
2006 Ð 2007£1,500,000
2007 Ð 2008£1,600,000
2008 Ð 2009£1,650,000
2009 Ð 2010£1,750,000
2010 Ð 2011£1,800,000

Member Contributions

There is no limit on the amount that an individual can contribute to a registered pension scheme. If you are a UK resident aged under 75 you may receive tax relief on your contributions to a registered pension scheme. Tax relief is limited to relief on contributions up to the higher of 100% of your UK taxable earnings, and £3600.

Any amount of contributions paid over the annual allowance will be liable to the annual allowance charge.

Annual Allowance
Tax YearAmount (£)
2006 - 2007£215,000
2007 - 2008£225,000
2008 - 2009£235,000
2009 - 2010£245,000
2010 - 2011£255,000

Notional Earnings Cap

Before 6 April 2006 the rules of many pension schemes limited the amount of benefits that could be provided or contribution paid by reference to the permitted maximum under s590C ICTA 1988. Although section 590C ICTA 1988 was repealed on 6 April 2006 the permitted maximum can continue to apply to registered pension schemes for a period up to 5 April 2011 because of regulation 4 of The Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 – SI 2006/364.

If section 590C had not been repealed on 6 April 2006, a Treasury order would have stated the permitted maximum figure for the tax years as follows;

Tax YearAmount (£)
2006 - 2007£108,600
2007 - 2008£112,800
2008 - 2009£117,600

Tax charges on payments from registered pension schemes

There are a number of special tax charges that apply to special payments made from registered pension schemes. These are listed below. The normal income tax rates apply to ordinary pensions payments made from pension schemes.

 Rates
Lifetime allowance charge55% - if the amount over the lifetime allowance is paid as a lump sum
25% - if the amount over the lifetime allowance is not taken as a lump sum
Annual allowance charge40%
Unauthorised payments charge40%
Unauthorised payments surcharge15%
Short service refund lump sum charge20% on first £10,800, 40% on amounts over £10,800
Special lump sum death benefits charge35%
Authorised surplus payments charge35%
Scheme sanction charge15% - 40%

State Pension and Pension Credit

As   announced   at   the   Pre-Budget   Report   2009,  on   12   April   2010   the   basic   State   Pension   will increase by 2.5 per cent, in line with the Government’s commitment to increase it by the higher of September’s Retail Prices Index or 2.5 per cent.     Pension credit means that no single pensioner need live on less than £132.60 a week in 2010-11 and no couple on less than £202.40

£ per week2009-102010-11
State pension
Category A or B basic State Pension95.2597.65
Category B basic State Pension (lower) Ð spouse or civil partnerÕs insurance57.0558.50
Category C or D - non-contributory57.0558.50
Category C (lower) - non-contributory34.1535.00
Pension Credit
Standard minimum guarantee Ð single130.00132.60
Standard minimum guarantee Ð couple198.45202.40
Savings Credit threshold Ð single96.0098.40
Savings Credit threshold Ð couple153.40157.25
Savings Credit maximum Ð single20.4020.52
Savings Credit maximum Ð couple27.0327.09

22 July Emergency Budget

The Government will uprate the basic State Pension by a triple guarantee of the highest of earnings, prices or 2.5 per cent from April 2011. The CPI will be used as the measure of prices, consistent with the Government’s decision to index all benefits and tax credits by the CPI, although the basic State Pension will increase by at least the equivalent of the Retail Prices Index (RPI) in April 2011 to ensure its value is at least as generous as under previous uprating rules. The standard minimum income guarantee in Pension Credit will increase in April 2011 by the cash rise in a full basic State Pension.

Individual Savings Accounts

As announced at Budget 2009, from 6 April 2010 the annual ISA investment limit for every adult is £10,200, up to £5,100 of which can be saved in cash.        This higher limit has applied for those aged 50 and over since October 2009.

Individual Savings Account2009-102010-11
For those aged under 50£7,200, of which up to £3,600 can be saved in cash.£10,200, of which up to £5,100 can be saved in cash.
For those aged 50 and over10,200, of which up to £5,100 can be saved in cash.10,200, of which up to £5,100 can be saved in cash.

Construction Industry

Sub-contractor/s rate of deduction at source - 2000/01 onwards
18%

Car benefits

From 6 April 2002 the charge on the benefit of a company car is based on a percentage of the list price and graduated according to CO2 emissions.

CO2 emissions (g/km)
(see note)
2005/06 to 2007/082008/09 onwards
13515%15%
14015%16%
14516%17%
15017%18%
15518%19%
16019%20%
16520%21%
17021%22%
17522%23%
18023%24%
18524%25%
19025%26%
19526%27%
20027%28%
20528%29%
21029%30%
21530%31%
22031%32%
22532%33%
23033%34%
23534%35%
24035%35%
24535%35%
25035%35%
25535%35%

The appropriate percentage arrived at from this table is subject to other adjustments for alternative fuels, though it is used unless the car falls within one of the categories for which adjustments are required.

Legislation will be introduced in Finance Bill 2008 to set the rates of company car tax charge for 2010-11 and subsequent years.

Note: The exact CO2 figure is always rounded down to the nearest 5 grams per kilometre (g/km). For example, CO2 emissions of 188g/km are treated as 185g/km.

Fuel benefit

The charge on the fuel benefit is based on a percentage of a set figure and graduated according to CO2 emissions.  For 2003/4 onwards, the set figure is £14,400.

Approved mileage rates

Approved mileage rates are statutory maximum amounts that can be paid without deducting tax and NICs. An employer can decide to pay more or less than the approved mileage rates.

2002-2003 to
2004-2005
First 10,000 business miles in the tax yearEach mile over 10,000 miles in the tax year
Cars and vans40p25p
Motor cycles24p24p
Bicycles20p20p

Tax relief for business expenditure on cars

New rules for tax relief for business expenditure on cars were announced on 1 April. These take effect from 1 April 2009 for businesses in the charge to Corporation Tax and 6 April 2009 for businesses in the charge to Income Tax. The rate at which qualifying expenditure on cars can be written down against profits will depend on the car’s CO2 emissions. Expenditure on cars with CO2 emissions exceeding 160 g/km will be allocated to the special rate capital allowances pool and attract 10% writing-down allowance (WDA). Expenditure on cars with CO2 emissions of 160g/km or less will attract 20% WDA in the main plant and machinery pool. The associated rules which disallow a proportion of car lease rental payments have also been amended in line with the new capital allowances rules.

30 Sep 2010

Royalty

Royalty was abolished with effect from 1st January 2003.

For periods before that date, the rates were: %
Fields given development consent before 1 April 198212.5%
Fields given development consent after 31 March 1982Nil

30 Sep 2010

Landfill Tax

Rates

 Standard RateLower Rate (inert waste)
1 April 2013£72 per tonne£2.50 per tonne
1 April 2012 to 31 March 2013£64 per tonne£2.50 per tonne
1 April 2011 to 31 March 2012£56 per tonne£2.50 per tonne
1 April 2010 to 31 March 2011£48 per tonne£2.50 per tonne
1 April 2009 to 31 March 2010£40 per tonne£2.50 per tonne
1 April 2008 to 31 March 2009£32 per tonne£2.50 per tonne

From 1 October 1999 there is an exemption for inert waste used to restore landfill sites and fill working and old quarries.  Secondary legislation to be laid later this year will phase out this exemption.

Applications for landfill tax exemption certificates will not be accepted by HMRC on or after 1 December 2008.

Anyone in possession of a valid exemption certificate will have until 31 March 2012 to dispose of their waste if they wish to benefit from theexemption. All certificates issued under the scheme will cease to be valid on or after 1 April 2012 and disposals to landfill of waste from cleaning up contaminated land made on or after that date will be liable to landfill tax at the appropriate rate.

LANDFILL COMMUNITIES FUND

Secondary legislation was introduced to amend the maximum credit that landfill site operators may claim against their annual landfill tax liability, for contributions made to bodies with objects concerned with the environment, enrolled under the LCF, from 6.6 per cent to 6 per cent. This was estimated to result in an increase to the maximum value of the fund of £5 million to give a potential value of £70 million of credit claimable for 2008-09.

Legislation was introduced in 2008 to transfer responsibility for decisions on whether to revoke the approval of an environmental body which fails to comply with its obligations from ENTRUST, the regulatory body, to the Commissioners of HM Revenue & Customs. These decisions by the Commissioners will be subject to their review and appeals system.

The period after which an environmental body must submit details of its income, expenditure and balances to the regulator, or the Commissioners if appropriate, will be extended from 14 to 28 days after either the end of the relevant period or a request being made. The relevant period is usually a 12 month period from 1 April to 31 March each year.

30 Sep 2010

Stamp taxes and duties

Transfers of land and buildings (consideration paid)

The stamp duty land tax (SDLT) holiday, which exempts residential properties up to the value of £175,000 from SDLT, is extended until 31 December 2009.

From 1 January 2010, the zero and 1% rates apply as per the table below:

Stamp Duty Land Tax (SDLT)

RateResidential in disadvantaged areas
Residential outside disadvantaged areas
Non-Residential
Total Value of Consideration #colspan# #colspan# #colspan#
Zero£0 - £150,000£0 - £125,000£0 - £150,000
1%Over £150,000 - £250,000Over £125,000 - £250,000Over £150,000 - £250,000
3%Over £250,000 - £500,000Over £250,000 - £500,000Over £250,000 - £500,000
4%Over £500,000Over £500,000Over £500,000

(On the 2 September 2008 a SDLT holiday was announced, increasing the starting rate of SDLT for residential property to £175,000. This was due to expire on 3 September 2009. Budget 2009 announces that this will be extended until 31 December 2009.)

New leases (lease duty)

Duty on the premium is the same as for transfers of land (except that special rules apply for non-residential land and property premium where rent exceeds £1,000 annually. The rules no longer apply to residential property from 12 March 2008). Duty on the rent is charged on any part of the net present value (NPV) which exceeds the threshold.

RateNet Present Value of Rent
Residential in disadvantaged areasResidential outsidedisadvantaged areasNon-Residential
Slice of NPV
Zero£0 - £150,000£0 - £125,000£0 - £150,000
1%Over £150,000Over £125,000Over £150,000

For new leases, the rates applicable in respect of the premium are the same as for transfers of land and buildings (except that special rules apply where the rent exceeds £1,000 annually for non-residential land and property. The £600 threshold has been abolished for residential land and property with effect from 12 March 2008).

For the rental element of new leases, the charge is based on the net present value (NPV), which is the total of the discounted annual rental payments. The NPV is charged at 1 per cent on the excess over £125,000 for residential land and property and 1 per cent on the excess over £150,000 for non-residential land and property.

Legislation will be introduced in Finance Bill 2010 to provide a Stamp Duty Land Tax relief where:

  • an individual or individuals jointly purchase a major interest in land which is wholly residential
  • the consideration is more than £125,000 but not more than £250,000
  • that individual (or all of them) intends to occupy the property as his/her or their only or main residence
  • an individual or individuals has or have not previously purchased such an interest or its equivalent anywhere in the world
  • the effective date of the transaction is on or after 25 March 2010 and before 25 March 2012.

At present the highest SDLT rate of 4 per cent applies to purchases where the consideration exceeds £500,000. Legislation in Finance Bill 2010 will add a new rate of 5 per cent for transactions in residential property where the consideration for the transaction exceeds £1 million.

The new higher rate will apply to residential purchases where the effective date (normally the date of completion) is on or after 6 April 2011.

Transfers of shares and stocks

The rate of stamp duty/stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5 per cent for 2010-11.

30 Sep 2010

VAT

Key VAT Rates

 From 01.04.08From 01.12.08From 01.01.10From 04.01.11
Standard rate17.5%15.0%17.5%20.0%
VAT Fraction7/473/237/471/6
Reduced rate5%5%5%5%

22 July Emergency Budget

With effect from 4 January 2011, the standard rate of Value Added Tax will increase to 20 per cent, with antiforestalling measures to be introduced.

The Budget also announces that sectoral rates for the VAT Flat Rate Scheme (FRS) will be updated. Details of new sectoral rates will be available on the HMRC website.

Registration thresholds

 From 01.14.08From 01.05.09From 01.04.10From 01.04.11From 01.04.12
Annual Registration Limit£67,000£68,000£70,000£73,000£77,000
De-registration Limit£65,000£66,000£68,000£71,000£75,000

The increase in the taxable turnover threshold means that a person will have to apply for registration if:

  • at the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £70,000; or
  • at any time there are reasonable grounds for believing that the value of the taxable supplies to be made in the next 30 days alone will exceed
    £70,000.

The reduced rate applies to:

  • Children’s car seats
  • Children’s car seat bases  (From 1 July 2009)
  • Contraceptive products
  • Domestic fuel or power
  • Energy-saving materials: installation
  • Heating equipment, security goods and gas supplies: grant-funded installation or connection
  • Installation of mobility aids for the elderly
  • Residential renovations and alterations
  • Residential conversions
  • Smoking cessation products
  • Welfare advice or information
  • Women’s sanitary products

Fuel scale charges

Businesses which recover input tax on fuel used for private motoring must account for VAT according to a scale charge where fuel is put to a private use.  New scale charges apply from 1 May 2009, which must be used the from the start of the next prescribed accounting period beginning on or after that date. The changes are made to reflect changes in fuel prices. Also amended is the table of CO2 bands to maintain alignment with those used for direct tax purposes. Details are to be Notice in Notice 700/64 on the HMRC website.

The scale charge for a particular vehicle is determined by its CO2 emissions figure. Where the CO2 emissions figure of a vehicle is not a multiple of five, the figure is rounded down to the next multiple of five to determine the level of charge. For a bi-fuel vehicle which has two CO2 emissions figures, the lower of the two figures should be used. For cars which are too old to have a CO2 emissions figure HM Revenue & Customs (HMRC) have prescribed a level of emissions by reference to the vehicle’s engine capacity (cc).

30 Sep 2010

Corporation Tax

£ per year (unless stated)2010-112011-122012-13
£0-£300,000
21%20%20%
£300,001 - £1,500,000Marginal ReliefMarginal ReliefMarginal Relief
£1,500,001 or more
28%26%24%

22 July Emergency Budget

The Budget announced annual reductions to the main rate of corporation tax. The main rate of corporation tax will be reduced to 27 per cent in 2011-12, with further reductions to 26 per cent in 2012-13, 25 per cent in 2013-14 and 24 per cent in 2014-15.

The Budget also announced a reduction in the small profits rate of corporation tax to 20 per cent from April 2011.

* The small profits rate was due to rise to 22 per cent in 2011-12, as announced originally at
Budget 2007 and deferred to 2011-12 at 2009 Pre-Budget Report.

Bank levy
The Budget further announced that a bank levy based on banks’ balance sheets will be introduced, effective from 1 January 2011. It is proposed that the levy will be set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011.

The 2009 Pre-Budget Report announced that a rise in the small companies’ rate to 22% would be deferred until 2011-12.

Marginal relief eases the transition from the small companies’ rate to the main rate for companies with profits between £300,000 and £1,500,000.

The profits limit may be reduced for a company that is part of a group or has associated companies. The small companies’ rate and marginal relief do not apply to close investment holding properties.

Rates for financial years starting on 1 April

 20082009201020112012
Small Companies Rate*21%21%21%20%20%
Small Companies Rate can be claimed by qualifying companies with profits at a rate not exceeding£300,000£300,000£300,000£300,000£300,000
Marginal Small Companies Relief Lower Limit£300,000£300,000£300,000£300,000£300,000
Marginal Small Companies Relief Upper Limit£1,500,000£1,500,000£1,500,000£1,500,000£1,500,000
Marginal Small Company Relief (MSCR) Fraction7/4007/4007/4003/2001/100
Main rate of Corporation Tax28%28%28%26%24%
Special rate for unit trusts and open-ended investment companies 20%20%20%20%

The main rate of Corporation Tax applies when profits (including ring fence profits) are at a rate exceeding £1,500,000, or where there is no claim to another rate, or where another rate does not apply.

* For companies with ring fence profits (income and gains from oil extraction activities or oil rights in the UK and UK Continental Shelf) these rates differ. The small companies’ rate of tax on those profits is 19 per cent and the MSCR fraction is 11/400 for financial years starting 1 April 2008, 2009 and 2010. The main rate is 30 per cent for financial years starting on 1 April 2009 and 2010.

Company taxes on profits from UK Oil and gas production

£ per year (unless stated)
2009-102010-112011-122012-13
Ring fence corporation tax main rate30%30%30%30%*
Supplementary charge10%10%20%30%
Petroleum revenue tax 50%50%50%50%

* Petroleum Revenue Tax is deductible in computing profits chargeable to ring fence corporation tax and supplementary charge.

The Supplementary Charge has applied from 17th April 2002 to the UK upstream profits of companies in the oil industry.  It is based on ring-fence CT income as adjusted for financing costs.  The charge commenced in April 2002 at 10 %.  This was increased to 20% from 1st January 2006.

Legislation was introduced in 2009 to include:

  • changes to the ring fence corporation tax (RFCT) and Petroleum Revenue Tax (PRT) rules to facilitate change of use activities where North Sea assets and infrastructure are reused for purposes other than oil and gas production.
  • Amendments to the chargeable gains rules to make it easier to allow companies to transfer their UK and UKCS assets to those most able to  maximise the potential of those assets.
  • An extension to the PRT rules that provide relief for decommissioning costs to cover the situation where, as a result of licence expiry, a company is no longer a licensee. In addition, changes will be made to the PRT legislation to reduce the compliance burden and further simplify the regime.
  • Amendments to the RFCT legislation to fully align the definition of a consortium with the general corporation tax (CT) definition.

The change of use measures have had effect respectively for RFCT in relation to expenditure incurred on or after 22 April 2009; and for PRT in relation to chargeable periods beginning after 30 June 2009.

Capital Allowances

From 1 April 2008 for corporation tax, and 6 April 2008 for income tax, changes were made to the rates of capital allowances. Allowances for plant and machinery reduced to 20%, allowances for long-life assets increased to 10% and a new classification of features integral to a building was be introduced at a rate of 10%. The amount of relief claimable under industrial and agricultural buildings allowances was reduced by one quarter, as part of phasing them out in full by 2011. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100% of the first £50,000 of expenditure.  This was increased to £100,000 for 2010-11.

Loss making companies investing in plant and machinery which qualifies for Enhanced capital allowances for environmentally beneficial and energy saving technologies can surrender losses from qualifying expenditure for a cash payment of 19% of the expenditure, subject to a cap of the higher of £250,000 or a company’s PAYE/National Insurance Contributions liabilities.

From April 2008, the rate of research and development tax credits rose from 125% to 130% for large companies and from 150% to 175% for SMEs.

R & D Tax Credit

 2009-102010-112011-122012-13
SME Rate175%175%200%200%
Large Company Rate130%130%130%130%

For businesses investing in plant and machinery between April 2009 and April 2010, legislation in Finance Bill 2009 introduced a new temporary 40 per cent first-year allowance (FYA) for expenditure on general plant and machinery. That is expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.

Capital Allowances

 2009-20102010-20112011-122012-13
Main writing down allowance20%20%20%18%
Special rate writing down allowance10%10%10%8%
Temporary first year allowance40%000
Annual Investment Allowance£50,000£100,00000

Tax relief for business expenditure on cars

New rules for tax relief for business expenditure on cars were introduced from 1 April 2009 for businesses in the charge to Corporation Tax and 6 April 2009 for businesses in the charge to Income Tax. The rate at which qualifying expenditure on cars can be written down against profits will depend on the car’s CO2 emissions. Expenditure on cars with CO2 emissions exceeding 160 g/km will be allocated to the special rate capital allowances pool and attract 10% writing-down allowance (WDA). Expenditure on cars with CO2 emissions of 160g/km or less will attract 20% WDA in the main plant and machinery pool. The associated rules which disallow a proportion of car lease rental payments have also been amended in line with the new capital allowances rules.

Construction Industry

There are special tax rules that apply to businesses in the construction industry that can require a deduction of tax at source on payments by a “contractor” to a “Sub-contractor”.  The current rate of deduction is 18%.

Before they can get paid at all under the Scheme, subcontractors must hold either a Registration Card or a Subcontractors Tax Certificate.  To obtain either of these a subcontractor must first be registered with the Inland Revenue.

Subcontractors who meet certain qualifying conditions will be issued by the Inland Revenue with Subcontractors Tax Certificates, enabling them to be paid gross. Those who do not will be issued with Registration Cards.

The deduction, when made, applies to all payments for labour and is an amount on account of the subcontractor’s tax and National Insurance contribution (NIC) liability.

What is meant by “Construction operations“.

An update to the rules of the scheme.

Business Rates

Updated property values for business rates take effect from 1 April 2010 (revaluation for business rates   takes   place   every   five   years).   The   multiplier for   2010-11   is   reduced to   compensate,   so   that total revenue from business rates remains the same in real terms. The standard multiplier includes a supplement on the small business multiplier to fund small business rate relief (SBRR). Budget 2010 announces   a   temporary   increase   in   the   level   of  small   business   rate   relief   for   one   year,   from   1 October 2010.

Business Rates

 Rate per pound of a business property's rateable value
2009-102010-11
Standard Multiplier48.541.4
Small Business Multiplier48.140.7

27 Sep 2010

Petroleum Revenue Tax (PRT)

Rate 50%
Oil AllowanceTonnage per chargeable periodAggregate Total
Fields given development consent before 1 April 1982 250,000(approx, 10,000 barrels per day). 5,000,000
Fields given development Consent on or after 1 April 1982:
Onshore & Southern Basin Fields125,000 (approx. 5,000 barrels per day)2,500,000
All Other Fields500,000 (approx. 20,000 barrels per day)10,000,000
Safeguard Limit 80% of adjusted profit minus 15% of

accumulated expenditure at end of period
Return periods6 months to 30/6 and 31/12
Claim periods6 months or 12 months ending 30/6 or 31/12
Appeals3 years from date of claim

27 Sep 2010

United Kingdom Oil and Gas Taxation

This is an archived version of the legislation. For an up-to-date summary please go to our Reference Page.

SUMMARY

Companies undertaking oil and gas exploration, development and production activities in the UK are subject to three tiers of direct taxation in the UK; petroleum revenue tax (PRT), corporation tax (CT) and supplementary charge (SC).  PRT (at 50%) is deductible against corporation tax and supplementary charge.  Corporation tax is currently chargeable at 30% on these activities and supplementary charge is levied at 32% in respect of profits accruing after 23 March 2011 (previously 20%). The profit base for SCT is the CT profit base as adjusted for financing items.

For activities subject to PRT the maximum marginal rate is 81% (with the CT and SC effect), although the effective rate of tax can exceed this  where companies are highly geared due to the lack of a deduction for interest costs for PRT and supplementary charge.

PETROLEUM REVENUE TAX (PRT)

Petroleum Revenue Tax, which is currently charged at 50%, was introduced in 1975.  It is levied on a field by field basis by reference to six-monthly chargeable periods ending 30 June and 31 December.

PRT has been abolished for all fields for which development consent was granted on or after 15 March 1993 but continues to apply to older fields.

Gas sold to British Gas under contracts signed before 1 July 1975 and oil appropriated for field production is exempts.

PRT is payable on the value of oil and gas produced less allowable costs and reliefs.

Each field is a separate taxable unit. So each licensee must produce a separate return for each field in which it has an interest, and the return will include only income and expenses for that field. There are, however, a number of non-field reliefs available.

PRT is also payable on certain tariff receipts and disposal receipts on assets whose cost has qualified for PRT relief.

To determine the value of oil and gas sold, there is a distinction between arm-length and non-arm’s length sales.  For arm’s length sales the actual sales proceeds are used.  For non-arm’s length disposals or appropriations (other than for production purposes) the market value, as determined by LBS Oil &Gas, is brought in. A ‘nominations’ system determines whether an arm’s length valuation may be used for arms length sales which are delivered into certain types of forward contract. If a sale is within the nomination scheme but is not correctly nominated it will be taxed on the higher of the LBS Oil & Gas market value for the delivery month and actual realisation.

Tariff receipts are chargeable to PRT insofar as they relate to the use of, or services provided in connection with the use of, a qualifying asset or related facilities.  “Qualifying assets” are those expenditure on which has attracted actual or deemed PRT relief, except for non-dedicated mobile assets.  Any proceeds from the disposal of a qualifying asset are also brought into charge.  An exception to this rule is that tariffs from fields receiving development consent after April 8th 2003 or fields that have not used other fields’ infrastructure before that date are exempt if the tariff agreement was entered into after April 8th 2003.

Taxable tariff receipts in respect of extraction, transport, initial treatment, or initial storage of oil won otherwise than from the principal field attract a throughput allowance where the “user” field is also a taxable field i.e. a field determined before March 16th 1993.  Tariffs earned in respect of the first 250,000 tonnes of throughput per chargeable period from each taxable user field are effectively exempt from charge.  The allowance cannot create a loss.

PRT is also extended to charge tariff and disposal receipts earned by licensees in non UK fields to the extent that the tariff or disposal receipts relate to assets situated on the UK continental shelf and those assets are used by UK fields.

PRT cost allowances essentially give relief in full for outlays as incurred, regardless of whether the expenditure is of a ‘revenue’ or ‘capital’ nature.  Claimed expenditure is only deductible against income once it has been determined as allowable by LBS Oil & Gas.  The reliefs can be summarised as follows:

Field expenditure

Most costs of exploring, appraising, developing, producing, measuring and selling oil won, and abandoning a field will be qualifying costs for relief.  In respect of exploration costs, relief is given if the “searching” cost is incurred within 5,000 metres of the field boundary notwithstanding the costs may not be related to that field.

Relief is given in full in the first relevant period other than for expenditure incurred on non-dedicated mobile assets or expenditure on remote associated assets.  A mobile asset is dedicated to a field if it is expected that it will be used in that field for substantially the whole of the asset’s remaining life.  If the asset is non-dedicated, relief is only available for that part of the expenditure which relates to periods of use.

Remote associated assets are those put in place purely to earn tariff income, any part of which is situated more than 100 metres from a main field asset, e.g. a spur pipeline.  Relief for the cost of such assets is only available against the tariff income (net of TRA) earned from that asset.

A supplementary allowance (uplift) is given at 35% on certain, broadly capital, expenditure, including the majority of costs incurred in bringing the field into production plus any costs incurred after first oil in substantially improving the rate at which oil can be won from the field.  However, uplift only applies to qualifying expenditure incurred prior to payback i.e. when cumulative income exceeds cumulative expenditure plus uplift.

The main non-deductible items for PRT are: financing costs, e.g. interest; the cost of acquiring land or interests in land; certain buildings, e.g. administrative offices; de-ballasting; expenditure that depends on the results of the field, e.g. a royalty interest; payments to obtain interests in oil, e.g. licence acquisitions from other licensees; expenditure met by subsidy.

To the extent expenditures (plus uplift) in any chargeable period exceed income the resultant loss can be carried forward or back indefinitely.

Where costs are incurred partly for a qualifying field purpose and partly for another purpose then an apportionment must be made.  To the extent that costs are incurred to generate a taxable tariff this is treated as a qualifying PRT purpose.  Costs associated with generating non-taxable tariffs are not allowable.  In this case HMRC generally operate a “safe-harbour” approach whereby the cost disallowance is restricted to 50% of the tariff.

 

Non-field reliefs

Although the taxable unit is the field, certain expenditures incurred otherwise than in respect of that field are nevertheless allowable.

 

Cross-field allowance

This is available for expenditure in offshore taxable fields outside the Southern Basin where development consent was given after March 16, 1987.  Up to 10% of qualifying expenditure (basically that which would qualify for uplift – see above) incurred after that date may be set against PRT profits from another field in the same group.  However, uplift is foregone on the expenditure claimed.

 

Research expenditure relief

Research costs that do not become allowable with respect to a specific field within three years of being incurred but which have an application to taxable fields may be set against the participator’s PRT profits from any field (but not those of an affiliate).

 

Abandoned field loss relief

If, following the cessation of production from a field, there is a cumulative loss (ignoring any oil allowance relief (see below)), that loss may be claimed against the PRT profits of any other field in the same group ownership.

Other reliefs

 

Oil allowance

This permits a maximum of 250,000 tonnes per field per chargeable period to be free of PRT, with an aggregate relief of 5 million tonnes available.  This allowance was doubled for fields obtaining development approval after 31 March 1982, but is halved for fields onshore or in the Southern basin.  This allowance is shared among the participators in the field.  It can only reduce a profit to zero and cannot create a loss.

 

Safeguard

This relief is aimed at providing a normal rate of return against PRT.  It limits the PRT payable to a maximum of 80% of the amount by which the “adjusted profit” (broadly PRT profit from the field before deducting expenditure qualifying for supplement, and non-field reliefs) exceeds 15% of the accumulated capital expenditure at the end of each period.  The accumulated capital expenditure is the cumulative expenditure for the field that has qualified for supplement.  Safeguard applies to all chargeable periods until payback and, thereafter, for half as many periods again.

 

Payment of PRT

The rules require payments on account and instalment payments.  Estimated PRT liabilities are payable on account two months after the end of the chargeable period, and adjustments dealt with on formal assessment.  There is also a system of monthly instalment payments based on prior period liabilities, whereby 1/8 of the previous period’s liability is due at the end of the second month of the chargeable period, and at the end of each of the next five months.

 

CORPORATION TAX

Corporation tax is levied on a company by company basis, rather than the field basis of PRT.  A company with more than one field interest will therefore aggregate the results for those fields in arriving at its profits subject to corporation tax.

Taxable profits for corporation tax are determined by adjusting normal accounting profits; in particular, depreciation is disallowed and relief for capital expenditure given through specific capital allowances.  PRT is deductible for corporation tax purposes.

For “large” companies corporation tax is payable in instalments. The current rate of 30% is applied for ‘ring fence’ profits, and the tax is due on these profits in three quarterly instalments where the return covers the normal 12 month period. The first instalment is due six months and 14 days into the period and the others follow quarterly thereafter. This contrasts with the four instalments and a lower rate in respect of non ‘ring fence’ profits.

 

The Ring Fence

While all companies operating in the UK are within the corporation tax regime there are some additional rules (the ring fence rules) that relate to upstream oil and gas activities.  These ring fence rules are designed to prevent companies reducing their upstream ring fence profits with reliefs and allowances from other activities.

The main restrictions are that losses and expenses from other activities, either within the company or accruing to an affiliate, cannot be deducted against ring fence profits.  The deductibility of financing costs is also limited such that, broadly, interest deductions are only available in respect of monies borrowed which have been used in the ring fence business, and where the terms do not exceed those applicable at arm’s length. In applying the rules, the assumption is made that the ring fence business is supported solely by the ring fence assets of the borrower.  There are restrictions on the utilisation of capital losses against capital gains, and limitations on the amount of capital allowances that can be claimed on field transfers.

Other than the above the normal corporation rules are applied to the ring fence activities. There are however a number of areas of the regime that are of particular relevance to upstream activities, which are set out below.

 

Capital Allowances

Neither capital expenditure nor the depreciation of those costs is allowable for corporation tax purposes, instead there are specific capital allowances available which are deducted from chargeable profits.

The allowances that are of most relevance to upstream activities are research and development allowances (RDAs), plant and machinery allowances (P&M), and mineral extraction allowances (MEAs).  No allowances are available until a company commences to trade, but once it does all capital costs incurred prior to commencement are deemed to have been incurred at commencement.

 

RDAs

RDAs, for which relief at 100% is given, apply to all exploration and appraisal costs until such time as reserves in commercial quantities have been discovered.  The costs must be first hand exploration or appraisal costs.  No relief under these provisions is therefore available for reimbursing previously qualifying costs or when buying into a licence (but see comments on MEAs below).

 

P&M

The capital cost of production and transportation facilities will generally qualify for plant and machinery capital allowances.  Most costs incurred after April 16th 2002 will qualify for immediate 100% relief, although prior to that date costs only qualified at the rate of 25% per annum on a reducing balance basis.  Expenditure on ‘long life assets’, i.e. those with a useful economic life that is expected to be 25 years or more, incurred after April 16th 2002 and before 1 April 2008 only qualify for an initial 24% allowance with the balance, and any previously incurred costs, qualifying for relief at the rate of 10% per annum on a reducing balance basis from 1 April 2008 (previously 6%).  From 1 April 2008 a 100% FYA is available in respect of expenditure on new long life assets used within the ring fence.  All qualifying assets (other than long life assets) are put into a single main pool or a special rate pool with a balancing allowance or charge arising when the last such asset in that category is disposed of, being the difference between the disposal proceeds and the balance of unclaimed allowances at that time.  If the assets are acquired as part of a Schedule 17 FA80 field transfer any claim is restricted to the cost of the seller.

 

MEAs

Mineral extraction allowances (MEAs) are available for mineral exploration and access expenditures (broadly all expenditures up to first production from a source) and on acquiring a mineral asset, but the rates differ between the types of expenditure.  Costs incurred on acquiring a mineral asset, and which cannot be attributed to past mineral extraction and access expenditure, qualify for a 10% writing down allowance on a reducing basis. But mineral exploration and access expenditure in a ring fence trade incurred after April 16th 2002 qualifies for an immediate 100% first year allowance.  Costs incurred prior to that, other than on acquiring a mineral asset, qualified for writing-down allowances at 25% per annum on a reducing balance basis.  In practice most costs potentially falling under this category will qualify for research and development allowance and will normally be claimed as such, unless the company doesn’t need the relief immediately, but for development drilling costs that do not qualify for RDAs can usually be claimed under the MEA code.  So-called “second-hand” exploration costs (e.g. reimbursements), and any value representing past exploration expenditure on licence acquisitions, qualify for the 100% relief (or 25% for expenditure prior to April 17th 2002) in a ring fence trade.

 

Decommissioning

Special rules apply to decommissioning expenditure.  Costs relating to the demolition of offshore installations and pipelines may qualify for a 100% deduction in the period they are incurred, but for other costs the relief may vary. Finance Act 2012 contained changes designed to restrict the rate at which relief for CT and SC is given for abandonment expenditures to 50%.

The costs of obtaining an abandonment guarantee are expressly allowable where they qualify as deductible for PRT and from 2013 it is expected this treatment will be explicitly allowed even where there is no application of PRT.

Losses

Trading losses may be carried forward indefinitely and set against future profits of the same trade.  Losses may generally be carried back 1 year.  To the extent the loss is generated by decommissioning expenditure there is 3 year carry back against total profits and thereafter a carry back (to April 2002) against ring fence profits.

Ring Fence Expenditure Supplement.

For accounting periods ended after 1 January 2006 Ring Fence Expenditure Supplement (RFES) may be available where a company makes a loss.

The RFES allow companies to claim a 6% supplement on a company’s ring fence trading loss for 6, not necessarily consecutive, periods. It applies to losses accruing in periods commencing on or after 1st January 2006. The rate of supplement was increased to 10% for accounting periods commencing on or after 1 January 2012. Losses attributable to exploration and appraisal expenditures incurred under the old Exploration Expenditure Supplement rules can also be taken into account.  Losses are computed on the assumption that all other available reliefs, such as group relief and loss carry back against ring fence profits, are claimed.

SUPPLEMENTARY CHARGE

A supplementary charge (SC) applies to ring fence profits accruing from April 17th 2002.  The rate was originally 10%, increased to 20% in 2006 and to 32% in respect of profits accruing after 23 March 2011.  The tax base is the ring fence profits of the company chargeable to CT after removing all financing costs.  Supplementary charge is payable in instalments as with CT.

FIELD ALLOWANCES

The original field allowance was introduced in Finance Act 2009, with further allowances following. The allowance reduces the profits of a company subject to the supplementary charge once the relevant field starts producing. It applies to fields which received development consent after 22 April 2009.  The allowance available, if any, depends upon meeting certain field criteria as at the date that development consent was granted (or in the case of the Brown Field relief, at the time of the addendum to the development consent)  .

There are currently 8 different levels of field allowances available where the gross level of allowance varies from £75m to £3bn. They are

Post 22 April 2009 Small Field Allowance

Post 21 March 2012 Small Filed Allowance

Ultra Heavy Oil Field Allowance

Ultra High Pressure High Temperature Allowance Field Allowance

Deep Water Gas Field Allowance

Sizeable Reserves Field Allowance

Shallow Gas Field Allowance

Brown Field Allowance

These allowances are shared between holders of the relevant fields and the relief available may be tapered where the field in question does not fully meet the necessary criteria.

 

CW Energy LLP – January 2013

23 Sep 2010

Simplified Treaty Relief for Interest Payments

Obtaining clearance to pay interest at reduced double taxation treaty withholding rates has been made simpler with the introduction of the optional HMRC ‘Double Taxation Treaty Passport’ scheme in respect of loans made from 1 September 2010. Once a lender is within the scheme, there is no longer the need for a borrower to seek certification from the overseas tax authority for each loan made. However borrowers will still be required to notify HMRC in order for a Direction can be issued that interest on a particular loan can be paid at reduced withholding.

The overseas corporate lender needs to apply for a Treaty Passport using the appropriate form. Once accepted, the passport holder is entered onto a publically available register with a unique number.

Where a UK borrower enters into a loan agreement with the passport holder, the lender will be obliged to send the borrower details of its passport including the rate of withholding that should apply. The borrower then needs to inform HMRC of the borrowing within 30 days of the loan being made, which can be done online, using the appropriate form. A copy of the loan documentation need not be submitted, unless requested. Unless there are special circumstances, HMRC will then issue a ‘Direction’ to the UK borrower to pay interest with income tax deducted at the reduced treaty rate with effect from the beginning of the loan. The present policy of issuing a direction for no more than 5 years will continue, although there is some flexibility on a case by case basis.

The existing certified claim method of obtaining double taxation relief will remain for non-Treaty Passport situations.

Comment

The introduction of the Treaty Passport scheme will reduce the administrative burden of needing each loan certified before a ‘Direction’ can be issued. It can apply to both third party and group borrowings and companies may therefore wish to look at obtaining a “passport” for group finance companies. As with the existing scheme any Direction will cease to apply if there is a material change in the circumstances of the lender, and the existence of a Direction does not of course signify that the interest will be an allowable deduction. Borrowers will need to ensure that adequate protection is included within loan agreements for this eventuality. For loans which are expected to have a term of more than five years the borrower would be obliged to apply for clearance in the normal way before the expiry of the Direction (although the application would not require certification).For further information, please call your usual CWE contact.

CW Energy LLP
September 2010

22 Sep 2010

UK Government’s view of Oil & Gas

22nd September 2010

On 16th September the UK Treasury published on its website a page on the UK oil and gas industry and its continuing importance to the UK economy. An extract is given below:

“There are a number of challenges facing the oil and gas industry. As resources become increasingly difficult to obtain and redundant drilling structures have to be removed, the Government must ensure that the tax regime in place is appropriate to these changes.

 That is why in the June Budget, the Government reiterated the importance of a fair and stable oil and gas tax system as well as committing to take forward discussions with industry to ensure that this happens.

The Economic Secretary, Justine Greening, has met with numerous industry stakeholders and also travelled offshore to better understand the challenges facing industry.

These ongoing discussions will ensure that the UK’s oil and gas industry continues to flourish, serving the interests of industry, Government and the wider public. “

Comment:

This publication, and the prominence given to it, is a refreshing shift in emphasis by the Government to the oil and gas industry. It would seem that the Government is convinced that the oil and gas industry is not just there to pay large amounts of tax but to provide a valuable resource for the UK, and may need fiscal assistance to develop the more difficult areas.

This latest statement repeats the requests already made for representations from the industry as to how the tax regime can be reformed to better ensure that more oil and gas can be extracted profitably. This view echoes comments made at the recent oil and gas direct tax forum, where the emphasis was on looking to employ existing provisions to provide relief for marginal prospects. This approach has been shown for example by the recent expansion of the scope of the small fields’ relief to the West of Shetland deep gas discoveries.

As there will not be a Pre-Budget Report this year it would seem that there is a window of opportunity for companies to lobby Government, either individually or through the industry committees, for the reliefs that would make a difference to their own projects prior to next year’s Budget; what is clear from this announcement and the profile they have given it is that Government is a willing listener and wants to assist the oil and gas companies in extracting the maximum resources possible from the North Sea.

If you want to discuss how this incentive can be used to lobby for your companies projects please contact any member of CW Energy.