The Chancellor delivered the last ever Spring Budget today. There were very few specific oil and gas measures in the announcements. Those having an impact on the regime are set out below.
Late life assets
The main new Budget announcement is that there is to be a further review of late life assets. A Treasury discussion document is to be issued on 20 March and it is anticipated that further consultation with interested parties will take place over the following months.
An advisory panel of experts is to be set up which is to be tasked with reporting, by the time of the Autumn Budget their conclusions on any measures that they believe need to be taken at in the future to break down perceived barriers to transfers of assets in the UKCS. This is following on from the work Treasury has done canvassing views on what was needed to be done regarding late life assets to ensure MER, in which many readers will have participated.
There will be many different views on what will best help achieve MER, but one of the key points that it is understood will be debated is the transfer of CT capacity on asset sales, to assist new players to acquire assets without sellers having to retain decommissioning obligations. Although HMRC confirmed at the time of last year’s Budget that from a CT point of view it is not necessary to stay on a licence for relief for abandonment to be available, and it is clear that a number of transactions have been carried out which intend to take advantage of this, the ability to transfer capacity would provide additional commercial options.
It is understood that there is no specific timetable for introducing any changes as a result of the review, and that this will depend in part on the responses received, but any measures which will facilitate the transfer of assets are to be welcomed.
In addition to the CT issues it is hoped that the current restrictive rules for PRT relief will also be addressed.
The long awaited Statutory Instrument (SI) extending the investment and cluster (but not the onshore) allowance regimes to cover certain operating and leasing costs has finally been laid before Parliament today.
The SI is understood to be broadly the same as the draft last seen by Industry over a year ago, and does provide for the changes to be backdated to 8 October 2015 as had previously been understood. The SI does not deal with tariffing income.
The introduction of these rules is to be welcomed and companies that have incurred relevant costs in 2015 will need to file revised returns if they have not already assumed the relief in filing their 2015 returns. It is understood that Treasury are still committed to extending the categories of income that can activate the scope of the allowance to cover tariffing and that they are publish a draft SI in the near future, which should contain a provision for any new rules to be backdated to the 8 October 2015 date.
As previously announced, the Finance Bill will contain provisions amending the PRT opt out rules such that fields no longer have to satisfy the requirement that they are not expected to have taxable profits. The provision will apply to chargeable periods beginning on or after 1 January 2017 but only if an opt out election has been made by the responsible person before the start of the chargeable period. The legislation will reply retrospectively such that provided an election was made before January 1 2017 the opt out can apply for CP 1 2017. These rules are being introduced in conjunction with the reduction in the reporting requirements for those fields remaining within the regime that were previously introduced (and did not require legislative change).
Going forward it is likely that only fields where the partners agree that there is no possibility of any future PRT repayments or the creation of a UFL will opt out. Others will continue to file returns and the simplifications introduced are welcome.
Research and Development
It has been announced that the RDEC rules are to be simplified.
Whether this will be of much benefit to oil & gas companies remains to be seen.
CW Energy LLP
8 March 2017