Yearly Archives: 2020

17 Nov 2020

Uncertain Tax Treatments Notification delayed

Implementation of uncertain tax treatments notification is delayed until April 2022

The Government announced last week that the implementation of the new requirement for large businesses to notify HMRC of uncertain tax treatments will be delayed until April 2022.  The Government stated that the delay was to allow more time to get the policy and legislation right and to allow more time for businesses to prepare.

This decision has been made following the recent consultation on the new proposals when a number of organisations had raised concerns over the scope of the proposals. In particular, we believe that HMRC intends to look carefully at the concerns around subjectivity within their original proposal.

Background to the new proposal

Earlier this year HMRC published a consultation document asking for views on the introduction of a notification requirement in respect of uncertain tax treatments for large businesses (i.e. those which are in scope of the Senior Accounting Officer (‘SAO’) regime). The notification requirement would apply to corporation tax, as well as Petroleum Revenue Tax (‘PRT’), VAT, excise and customs duties, and other taxes which are in scope of the SAO regime.

The notification would be a single annual process, similar to that used by the SAO regime with penalties for failure to notify similar to that existing under the SAO regime.

The proposed threshold for reporting has been set at £1m tax effect in respect of the combined tax outcome of all in scope uncertain tax treatments in place.

Accounting practice 

As readers will be aware IFRIC 23, already requires companies to reflect their assessment of the outcomes of uncertain tax positions in the calculation of current and deferred tax charges. Where a company concludes that it is not probable that the tax treatment adopted in a return will ultimately prove successful (for example that it is probable it would ultimately be overturned by the courts) it must reflect this in its accounts.

HMRC’s current proposal

Unlike IFRIC 23, HMRC’s current proposal does not focus on expected final outcomes. The proposal is more widely drawn than IFRIC 23 as it requires notification of cases where the taxpayer believes that HMRC may in the first instance challenge its view on the operation and interpretation of tax law regardless of whether the taxpayer believes it is probable that any such challenge will ultimately be successful.

CWE Comments

We believe the proposal as currently drafted will lead to considerable uncertainty as to compliance obligations and could also be seen as moving the goalposts unfairly in the direction of HMRC.

We, therefore, welcome the Government’s announcement to delay implementation and further consider the policy and legislation. It is perhaps unlikely that the measure will be abandoned altogether but we hope that HMRC will respond to the concerns raised by either conforming the proposal to existing accounting tests or clarifying the test to make it more objective, for example for the assessment to be made with reference to published HMRC guidance.

Given that it seems likely that this regime will be introduced we believe that it is important that taxpayers factor in the possibility of a wider notification requirement when assessing the efficacy of any tax planning.

28 Oct 2020

DAC 6 Mandatory reporting rules – the obligations for businesses

Mandatory reporting rules for certain types of transactions have been introduced by the UK, as required by the EU Directive on Administrative Cooperation, commonly called DAC6.  The obligation to report will fall mainly on “intermediaries”, i.e. broadly advisers, but in certain circumstances, the obligation will fall on the businesses themselves, and companies will therefore need to make sure they are complying with any obligations that exist for them.

These rules came into force on 1 July 2020 and originally had quite tight reporting deadlines thereafter.  The reporting deadlines were delayed and they will now come into effect from 1 January 2021 with potential reporting deadlines first arising at the end of January and February 2021.  Businesses, therefore, have less than 4 months before reporting obligations might arise.

The rules are complex and this note sets out a summary of the rules and how businesses will need to act to ensure they are complying with their new obligations.

Background to the rules

 The requirement to report certain transactions under the rules is intended to discourage taxpayers from implementing “aggressive tax arrangements”.  In addition, the rules will provide an early warning system for tax authorities, allowing them to challenge arrangements and implement any change in the law required to block similar tax arrangements more quickly.

The rules set out:

  • which arrangements need to be reported (a ‘reportable arrangement’);
  • who needs to report the reportable arrangement;
  • what information is to be reported;
  • when the report needs to be made.

Which arrangements need to be reported?

 The rules only apply to cross-border arrangements.  In general terms, an arrangement will be cross-border where it is between businesses in different Member States, or between a business in one Member State and one in a third country.  We expect the UK rules to be amended with effect from 1 January 2021, when the UK ceases to be deemed to be part of the EU, to include arrangements between a business in the UK and one in a third country, whether a Member State or not.

Arrangements are reportable where they are both cross-border and contain at least one of the defined hallmarks (broadly types of arrangements).  Some of these hallmarks require there also to be an expectation of a tax advantage (called the main benefit test) that is outside the policy objective of that tax law.

There are no de minimis limits.

While the rules came into force on 1 July 2020, reportable transactions that have been implemented after 25 June 2018 must be reported.

Who needs to report the reportable arrangement?

 As noted above, the primary reporting obligation is placed on an intermediary (broadly, an adviser or service provider).  However, an intermediary in respect of the arrangement has no obligation to report where they can show they did not know, and could not reasonably have been expected to know, that the transaction in which they participated was a reportable cross-border transaction.

This is important as, if there is no intermediary that has an obligation to report (for example, where none of the intermediaries involved had sufficient knowledge of the arrangements), then the transaction must be reported by the taxpayer.

If an intermediary had an obligation to report but failed to do so, the reporting obligation does not, however, pass to the taxpayer (i.e. there is no requirement for the taxpayer to police the obligations of intermediaries).  However, if the intermediary does not report it could be difficult for a taxpayer to assess whether it has correctly applied the rules given they are, at least in part, subjective, and hence whether they had an obligation to report.

Where there is no intermediary that has an obligation to report and the transaction has already been reported by another taxpayer (e.g. a counterparty to the transaction) there is no further obligation to report that transaction as long as the taxpayer has evidence that it has been reported and the other taxpayer managed the implementation of the transaction.

In practice, this means that taxpayers will need to review their cross-border transactions and confirm that all their reportable transactions have been reported by intermediaries or other taxpayers, to be sure they don’t need to make a report.  In addition, it could be the case that a transaction has been partly reported by an intermediary, but not all the information has been reported (e.g. due to the intermediaries’ lack of visibility of the whole transaction).  That may mean the taxpayer has an obligation to make a “top-up” report, and taxpayers will want to obtain from their intermediaries details of what has been reported.

In any event, we would expect all companies would want to know what transactions are being reported to HMRC by any “intermediary” it has engaged and to perhaps have sight of the draft report before it is made.

What information is to be reported?

Information reportable include the details of the parties, an overview of the transaction, the hallmark that causes the transaction to be reportable, the value of the transaction, the date of the first implementation, and tax rules that are relevant.  The rules also set out to which tax authority the information should be sent.  For companies resident in the UK who are required to make a report, it should be made to HMRC.  HMRC is to open an online portal which will be used to receive reports.

When does the report need to be made?

The obligation to report comes into effect on 1 January 2021. For transactions that become reportable on or after that date the report needs to be made within 30 days of a defined date based on the date of the implementation of the transaction or when the intermediary first provided assistance. For reportable transactions where the obligation to report is triggered prior to 1 January 2021, the deadline will be the end of January 2021 except where the first step in the implementation took place between 25 June 2018 and 30 June 2020, for which the deadline is the end of February 2021.


The rules are complex and while HMRC has now issued guidance, the rules are very widely drawn and will require reports to be made for what is ostensibly benign non-tax advantaged transactions.

The time to start reporting under these rules is fast approaching so all businesses need to review their transactions implemented from June 2018 to ensure these transactions will be reported correctly.

We recommend that all businesses address these rules in advance of the January/February busy period.

In overview, we suggest all businesses:

  • identify all cross border transactions implemented after 25 June 2018;
  • consider and document whether any of those transactions are potentially reportable;
  • liaise with any intermediaries and counterparties to understand if they are intending to report, and if so, the extent of their reporting; and
  • consider whether the business has any further reporting obligations.

CWE can assist businesses in analysing whether transactions are potentially reportable, liaise with intermediaries on your behalf, and work with you to ensure the reporting obligations are satisfied.

CW Energy LLP
October 2020

15 Oct 2020

What does the recently announced proposed Premier/Chrysaor merger tell us?

Premier and Chrysaor have announced that they are to merge, in a Press Release issued on 6 October 2020, with further details included in presentations published at the same time. The proposed merger remains subject to shareholder and stakeholder approvals and it is possible that further details may be included in the shareholder circular.

Overview of the merger

The main relevant features of the transaction are:

  • Premier will acquire Chrysaor by issuing new Premier shares to Chrysaor’s existing shareholders; 
  • The enlarged group will settle debt and hedging liabilities through the payment of $1.23bn cash and a further issue of new Premier shares;
  • Premier’s existing letters of credit will be refinanced;
  • The payment to settle debt and hedging liabilities is being funded by draw down of an extended Chrysaor reserves based lending facility;
  • As this is a reverse takeover Premier’s shares will need to be re-admitted for trading on the main market of the London Stock Exchange. 

The transaction is expected, if it obtains the necessary approvals, to complete in Q1 2021.   

For Premier shareholders the main benefit would appear to be that it avoids the risk of losing their investment as a result of the significant Premier debt levels, although existing Premier shareholders are expected to hold only approximately 5% of the merger group (the other 18% allocated to Premier “stakeholders” is ear-marked for the Premier lenders).  

For Chrysaor investors the benefits are more compelling and include access to a c.$4.1 billion pot of Premier tax losses. 

Premier’s tax attributes

Prior to the announced merger Premier has been clear on its tax advantaged status due to its existing ring fence losses and investment allowances.  A significant portion of these losses were acquired on the acquisition of Oilexco more than 10 years ago. According to the announcements the parties are seemingly confident that the transaction can accelerate the use of these tax losses.

In its 2017 accounts Chrysaor had $1.5 billion of tax losses.  Published accounts of Chrysaor for 2019 show that it had current tax liabilities.  This suggests that the existing Chrysaor asset base is likely to be able to utilise the Premier pool of allowances in relatively short order. 

Interestingly the transaction that Premier announced in June with BP to purchase their Andrew and Shearwater interests will now not go ahead. There may be a number of reasons for this but in the press, Tony Durrant (Premier CEO) was recently quoted as saying:

……. the [BP] deal would have been a “good transaction” for Premier Oil as a standalone business ..However, he said the BP deal would have “diluted” the tax “synergy” created by the combination with Chrysaor.”

We understand that one of the factors which had helped facilitate BP and Premier being able to agree a deal was the ability to use Premier’s losses against Andrew and Shearwater profits. It appears, based on this statement and the merger Press Release, that there is an expectation that Premier’s tax losses can now be fully utilised by the activities of the enlarged Premier/Chrysaor group, such that the tax synergies that made the BP deal “work” no longer apply.  

In order to access Premier’s brought forward tax losses, legacy Chrysaor assets will need to be transferred to legacy Premier companies, and any incremental tax advantage will only start to accrue after such transfers.  The group will therefore need to navigate the anti- avoidance rules that can restrict the use of brought forward tax losses where there is a change in ownership. Given, the 2017 changes now mean that the anti-avoidance rule can bite if a loss maker has major changes in its trade in the five years after a change of ownership, and the statement that loss utilisation is to be accelerated post-merger, we would expect the parties to have had some engagement with HMRC on this issue. There is however no mention of this in the Press Release. 

As pointed out in our April 2020 Newsletter, HMRC have published some helpful guidance in their manuals on the application of the major change rules, and the fact that they will potentially give clearances. This has encouraged potential investees to look at acquiring companies with losses, whereas in the past, the uncertainty of the application of these rules would have led them to not even consider it. 

It seems clear that the “acquisition” of Premier would fall squarely within the category of transactions, as set out in the guidance, for which HMRC say they would not look to apply the rules: being the acquisition of a “genuine, viable and commercially carried on trade”. However it seems unlikely, given the potential value involved, that the Parties will have been content to simply rely on the published guidance.  


This deal is another example of where a transaction can deliver value through the effective use of tax attributes. There are a number of different techniques that can be used depending on the respective tax attributes of the parties and the profile of the assets.

CW Energy has extensive experience of structuring such commercially driven arrangements and would be pleased to discuss how such techniques can be applied to your circumstances.

CW Energy LLP
October 2020

23 Sep 2020

Changes in accounting for deferred tax on decommissioning assets and liabilities

An additional P & L hit?

As set out in our news brief in November 2019, the IASB issued an exposure draft (ED) last summer which may have a significant impact on the level of deferred tax accounted for on decommissioning assets and liabilities for certain companies.

The IASB interpretations committee recently met to discuss the feedback on this ED and they have recommended that the proposal is taken forward, but with one very important and for some unwelcome change.

It seems very likely that the proposed changes to IAS 12 will be implemented as now proposed, and with retrospective effect.

As a recap, the recommendation to now be put to the IASB is that an exception from the Initial Recognition Exemption (IRE) should be included within IAS 12 such that it would not apply to transactions that give rise to equal amounts of taxable and deductible temporary differences, such as leases, and of most significance to oil and gas companies, as arise on setting up an decommissioning provision and a corresponding decommissioning asset. This means that in the first instance full deferred tax should be set up on such balances. This will however be subject to applying the usual criteria on whether a deferred tax asset can be set up in respect of the some or all of the decommissioning provision.

Crucially the “capping rule” included in the ED, which would have only required a company to set up a deferred tax liability on the temporary difference associated with an abandonment asset to the extent that a deferred tax asset could be recognised on the corresponding temporary difference associated with the decommissioning liability, is to be removed.

The existence of such a capping rule would have minimised the impact of any changes in IAS 12 on oil companies which are not currently able to recognise a full deferred tax asset on the decommissioning liability provision because of the uncertainty as to whether the amounts are recoverable. For some companies it will therefore be the case that they will need to set up a deferred tax liability but with either no, or only a partial deferred tax asset.

We have seen a number of broad approaches for the treatment under IAS 12 for temporary differences on decommissioning assets and liabilities in recent years, but the effect of this change will be to standardise the approach going forward, and will require companies who have not been compliant with the new approach to amend their accounts with retrospective effect.

We have not, in fact, seen many companies apply the IRE in practice to decommissioning assets and liabilities in the past. The more common approach has been to treat the decommissioning asset and liability as “integrally linked” such that as no net temporary difference arises on initial set up, the IRE can have no application.

Having taken this approach however there have been two possible outcomes.
The first, which will be consistent with any amended standard, is to provide for a DTL on the asset in full, and to set up a DTA on the liability to the extent that the deductible temporary differences represented by the decommissioning liability are considered recoverable.

Alternatively, based on the integrally linked approach, some companies have “netted” the asset and liability in the calculation of their deferred tax position. Initially no amount is set up but as the asset and liability diverge (as the asset is depreciated and the liability accretes) a DTA is generally set up on the net liability number. In particular, in considering whether the deductible temporary difference in respect of the provision is recoverable some companies have taken the view that one only needs to consider this net provision position. This approach will, under the new rules in the standard in effect mean that the DTL may have been understated.

This netting approach is not new, but it increased in popularity for oil companies when the SCT rate was increased to 62% and the recoverability of tax on decommissioning was restricted to 50%. Companies were faced with the possibility of setting up an excess of 12% on the liability compared to the asset.

Although the ED addresses the narrow question of the IRE, such that we are not expecting any new wording in the standard to specifically outlaw this netting approach, the discussion papers issued as part of the IRE review make it clear that this netting approach is inconsistent with IAS 12 and should not be adopted.

Comparatives will have to be restated as a result of the retrospective application of this new rule (following IAS 8 principles).

Although retrospective application is required, the normal practice is to be modified such that an assessment of the recoverability of the DTA need only be made at the time of the first period for which comparatives are to be restated as a result of the charge, rather than the recoverability position at inception.

To the extent that the change in accounting policy leads to a reduction in deferred tax asset, or a net increase in the deferred tax liability, then this amount will be required to be taken to reserves. Going forward, in respect of new transactions the difference arising as a result of the application these rules will be required to be taken to P & L. The new proposals only have retrospective application to the accounting for leases and decommissioning assets and liabilities. For other assets the new rules, once implemented, will apply prospectively.


It is possible that the amended standard will apply to periods beginning on or after 1/1/2021.
The removal of the capping option will be a disappointment to many companies. The staff paper setting out the final recommendations indicated that it was believed it would be unusual for there to be a mismatch between recognition of assets and liabilities on decommissioning provisions. The rationale for this statement was that the amounts are likely to be large and that companies will have tax planning options available to them in order to minimise the mismatch. This comment seems naive and for many companies will not represent their reality.

We would recommend that companies review their current approach to determine whether the implementation of these proposed changes to IAS 12 could have a material impact on their position.

If a reader would like to discuss this proposed change please contact Paul Rogerson, Andrew Lister or their normal CWE contact.

25 Aug 2020

Scope of the ring fence: Royal Bank of Canada case

A recent tax case has considered whether an oil and gas royalty interest held by a non-UK resident gave rise to ring-fence income and whether the relevant treaty allowed HMRC to tax the income.

Whilst the case concerned the treatment of royalty receipts, the findings potentially have wider application.

The Case

Royal Bank of Canada (the Bank) had lent money to a Canadian oil company operating in the North Sea.  The Canadian company transferred its interest in the Buchan oil field to BP and in part consideration for the transfer received a royalty interest.  Payments under the royalty interest became due only if the oil price was above $20 a barrel and were based on the actual production from the Buchan interest transferred to BP.  The Canadian oil company suffered financial difficulty and entered receivership.  As part of the receivership process, the royalty interest was assigned to the Bank.

The case addressed two key issues:

  1. whether the income received under the royalty was ring-fence income under UK domestic law and;
  2. whether the UK/Canada double tax agreement afforded taxing rights to the UK.

The Bank lost on both issues.

Issue 1 – Ring fence income under UK domestic law

Domestic law charges non-residents to tax on “profits..(a) from exploration or exploitation activities, or (b) from exploration or exploitation rights”.  Exploration or exploitation rights are defined as being “rights to assets to be produced by exploration or exploitation activities or to interests in or to the benefit of such assets”.

The Tribunal rejected any proposition that the Bank was carrying on exploration or exploitation activities, finding no evidence that the Bank undertook such activities.

It also rejected the contention that the payments derived from an “interest” in the oil to be won from the Buchan field. HMRC had argued that a commercial interest was sufficient but the judge stated that a more legalistic approach was necessary and “a right to an interest” in the oil must refer to some underlying legal interest in the oil itself.

However, the Tribunal found that the royalty did represent a right to the benefit of the oil, stating that identifying who held the ‘benefit’ of oil to be extracted meant taking a broader and less legalistic approach than was needed in identifying the parties who held an interest.

Therefore, the Tribunal found that UK domestic law imposes taxation on the profits derived from the royalty interest and further as the income was found to be from an “oil right” it fell to be regarded as ring-fence income.

Issue 2 – Application of the double tax agreement

The UK/Canada Treaty shares the standard OECD model wording in respect of income from immovable property and allows taxation in the State in which the property is situated, inter alia, where the property represents “..rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources..”.

The Tribunal concluded that the character of the payments was set when the Canadian company transferred its interest in the Buchan field. The judge stated, “It is quite clear that on any realistic analysis, the royalty payment rights were originally created as part of the contractual arrangements under which the right to work the Buchan field (including the ownership of all oil won from it) was [transferred], and as part of the consideration for that right”. Once the character had been established the subsequent novation of the right did not alter this.

Therefore, the Tribunal found that the UK had been afforded taxing rights under the Treaty in respect of the royalty income.


CW Energy analysis

We are not surprised that the court found in favour of HMRC in this case.  The common view, and indeed that set out in HMRC’s published manuals, has been that royalties granted in consideration for the acquisition of an oil licence would give rise to ring-fence income in the hands of the recipient of the royalty income under UK domestic law, although there has perhaps been some uncertainty as to the precise technical basis for this view.

While the case does not set a legal precedent, it has raised the profile of the matter.

The key finding was that payments amounted to rights to “the benefit of” the oil won from the Buchan field, with a wide meaning ascribed to the term ‘benefit’.

We do not, however, believe that the case supports the proposition that any wider interpretation should be given to the ring-fence under domestic law. Nevertheless, it remains to be seen if HMRC will seek to apply the decision to non-royalty type situations.

This is a difficult area and in the light of this decision, it is worth looking again at any such arrangements to identify whether any risk arises.

With regards to the treaty protection, the position is also complex. There are few remaining UK treaties where the territorial waters of the UK are not included in the definition of ‘UK’ and based on this decision it seems clear that a treaty will preserve the UK taxing rights where there is a standard immovable property article.

Many treaties also include an offshore activities article which will need to be considered. Often income is only brought within the scope of this article if there are activities carried on offshore, but not always, and some treaties do allow income from “exploration or exploitation rights” to be taxed even where there are no such activities. Exploration or exploitation rights would tend to be defined in the same way as oil rights under domestic law.  It is also customary for this article to permit gains from the alienation of such rights to be taxed.

Although the decision does not throw any light on the equally difficult technical issue as to whether payments under a royalty by the holder of a licence interest are deductible in computing the ring fence profits of the relevant trade, the implication seems to be that the payer was obtaining such a deduction.

Finally, in considering the extent to which the Bank’s activities could comprise a ring-fence trade, the court was clear that the Bank did not undertake “extraction activities” which constituted a ring fence trade. This may be of interest to companies that have ongoing correspondence with HMRC in respect of service companies, where HMRC are asserting that their activities do amount to a ring-fence trade.

CW Energy would be pleased to assist companies reviewing their arrangements in light of the findings in the Royal Bank of Canada case.

CW Energy LLP
August 2020

27 May 2020

New HMRC view of how losses can be utilised for supplementary charge purposes

The supplementary charge calculation requires the relevant financing items to be excluded from the ring-fence CT (RFCT) profits. The question of how this relatively simple concept operates where losses are being utilised has been in dispute since the levy was introduced in 2002. Industry has believed that the so-called “shadow” method, where RFCT losses adjusted for any financing elements could be carried forward and set against SC profits as they arose, was valid, following an agreement with HMRC in 2007. This method has appeared in the HMRC manuals since then and continues to do so.

However, following further industry discussions on the way the rules should apply to loss carrybacks, which has never been subject to a consensus, HMRC has recently written to UKOITC setting out a new view as to how the carry-forward rules should be applied. They have stated that they will not seek to displace the shadow treatment in prior period returns, but will apply their new view going forward, presumably to include any 2019 returns not yet filed.

The consequence of the new HMRC view is that if a company has financing charges in a year which mean its SC profit is greater than its RFCT profit, it cannot shelter the excess even if there are sufficient “SC losses” brought forward available. Further, HMRC’s view is that to the extent any CT losses brought forward contain any financing costs, a pro-rata reduction of any losses utilised for RFCT purposes must be made before set off against SC profits.

A UKOITC working group is planning to discuss this new view with HMRC and try to persuade them that it is not in accordance with the law. However, there can be no certainty at present that this new view will not be applied going forward.

The new HMRC view can create some anomalous situations. Companies with significant RFCT loss carry-forwards which would not be exhausted for many years if ever, could nevertheless have annual SC to pay if they had any allowable financing costs. Also if there were FX gains in a year which meant SC losses were greater than RFCT losses, relief for those excess losses may never be obtained (unless there were equal and opposite finance costs in subsequent years when RFCT losses arose).  The new view may also lead to an increased deferred tax charge for any company that is currently carrying a deferred tax asset in respect of its SC losses.

CWE has a number of ideas that can help avoid or mitigate the effect of this new view. Some of these may take time to implement and, while the final view on this matter is still under discussion, it may be worth reviewing what options are available now as if the new HMRC view does prevail, liabilities could already be accruing.

CW Energy LLP
May 2020

16 Apr 2020

Anti-avoidance Rules – an update

Readers may recall previous newsletters (the last one being 4 February 2020) discussing HMRC’s view of the application of the anti-avoidance rules in Part 14 CTA 2010 which can deny the use of losses where there has been a change in a company’s ownership and a major change in the nature or conduct of a trade (the so-called MCINOCOT rules), or prior to the change of ownership the trade had become small or negligible.

We are pleased to note that the additional ring-fence trade guidance that has been under discussion for some time has now been published in the HMRC manuals (see OT21069A to C).


 As stated in previous newsletters, we believe the combination of this published guidance, and the ability to obtain clearances in most circumstances where there is remaining doubt as to the application of the MCINOCOT rules means that in the majority of cases, provided the company changing hands has a genuine ongoing business, the MCINOCOT rules should not normally be an impediment to doing a deal. This should allow parties looking to either sell or buy companies with ring-fence losses to plan the best commercial deal without having too much concern around the tax risk associated with these measures. This is to be welcomed and will hopefully assist in getting assets into the hands of parties most likely to extract maximum value, particularly in the current climate where more companies might be finding themselves in a loss position.  CWE has already had some success in obtaining clearances in appropriate circumstances although the guidance makes it clear that HMRC will not provide comfort to companies where it is clear that loss-buying is the primary purpose of the transaction.

03 Apr 2020

Covid-19 – Tax and Fiscal Changes

Covid-19 – the currently announced tax and fiscal changes

We thought it would be helpful to summarise the recently announced Government tax measures of most relevance to the UK upstream oil industry.  In addition, we highlight some tax issues that we think businesses should be considering in light of the much-changed business environment.

PAYE, Corporation Tax and other taxes – Time to Pay scheme

The Government signalled that businesses that are suffering financial hardship due to Covid-19 may be eligible for the existing Time to Pay scheme.  When a taxpayer cannot pay its tax liabilities in full on the due date for payment, HMRC may use its discretion to allow a company to pay over a period of time.  These arrangements are agreed on a case-by-case basis.  The Time to Pay scheme can apply to all taxes.

The key elements that a business needs to be able to show for a deferral to be agreed are that the business cannot pay HMRC now and that in future it will be able to pay the deferred tax and any other tax liabilities that become due in the deferral period.  The guidance notes that businesses who cannot pay HMRC should be able to demonstrate that other creditors are also being asked to accept deferred payment terms.

Interest on underpaid tax will accrue as normal.


We understand that HMRC is asking for evidence that circumstances that have caused the financial difficulty are Covid-19 related.  That may indicate that internally HMRC has been instructed to treat Covid-19 cases sympathetically.  Whilst it seems clear that it is a combination of the supply side and Covid-19 demand-side factors which have led to the collapse of oil prices, the Time to Pay scheme should still be available.

The general guidance provided by HMRC remains that the taxpayer needs to be able to show that it has difficulty paying now (not just it would prefer not to pay HMRC) but that it will have the ability to pay the tax-deferred.  We would suggest that reference to the forward oil price curve should provide good evidence to HMRC that any financial duress is temporary.

CT refunds and overpayments

Many businesses may find that they are owed money from HMRC either due to tax instalment payments being in excess of self-assessed liabilities, group relief claims being finalised, or loss carryback claims.

Submission of tax returns should, in theory, generate automatic refunds.  However, refunds can often be delayed as they may need approval by individual Inspectors or require the resubmission of earlier tax computations.


We recommend all businesses review their refund position by accessing the Government Gateway and ensuring all tax owed is refunded.  We have found Inspectors can usually expedite refunds or alternatively are happy to tell companies what further needs to be done to accelerate payment.

CT instalment payments

Most upstream oil companies pay corporation tax through instalments with payments based on profit estimates for the full year.  For December year ends, instalments are due on 14 July, 14 October and 14 January of the next year.

There is some discretion within the instalment regime as to the amount and timing of payments although there are potential penalties to be considered.

If companies believe they have paid too much tax in their instalment payments as profits have been overestimated, while any overpayment of tax should be refunded automatically on the filing of the relevant tax return, it is possible to seek repayment of tax under the instalment payment legislation where the tax return has not yet been submitted.  An application needs to be made to HMRC setting out the grounds for the claim and the amount of tax overpaid.


We would not expect there to be any material changes to the estimates which would have been made prior to making the 14 January instalment for 2019 for December year-end companies. However, many companies may now be predicting making a loss in 2020, but have paid tax in respect of 2019 with a loss carryback claim expected.  We would hope HMRC will be flexible in allowing repayments of 2019 instalments in such circumstances, but companies in this situation should consider the relevant rules carefully. We have experience of securing repayments in these circumstances and would be happy to discuss this issue further.   

VAT payment deferral

The Government has announced that all UK businesses may defer VAT payments.  Any UK business that was due to pay VAT between 20 March 2020 and 30 June 2020 are allowed to defer that payment without interest or other penalties.  No prior approval is required.  Any VAT deferred must be paid on or before 31 March 2021.

HMRC have confirmed that companies in a repayment position, or are due a refund, will have payments processed in the usual way.

VAT returns should be prepared and submitted as usual.


UK upstream oil companies are usually in a net repayment position and hence this deferral does not provide any cash flow advantage for most.

Making tax digital for VAT

HMRC announced on 30 March 2020 that the requirement for the implementation of digital links between the VAT return and underlying financial records is to be deferred.  The new requirements were due to be implemented by affected businesses for the first VAT return submitted after 31 March 2020.  The new requirements will now be required for the first VAT return submitted after 31 March 2021.


With the current pressure on all businesses, the relaxation of this requirement is welcome.

EU Mandatory Disclosure Rules

The UK introduced new rules requiring taxpayers and intermediaries to disclose details of certain types of cross-border arrangement to HMRC.  The regulations come into force on 1 July 2020. Reports for arrangements entered into from 25 June 2018 to 30 June 2020 will be due by 31 August 2020.

Guidance from HMRC on what transactions they expect to be reported is still expected to be published before the regulation comes in to force in July.


It is understood that while HM Government may have wished to delay the implementation of these rules this has not been sanctioned by the EU and therefore we are currently expecting the rules to come in to force as planned.

While many may have been awaiting the HMRC guidance to understand the rules in more detail it seems clear that work will need to be started (if not already) on identifying transactions that may be affected.  With current working practices meaning many do not have access to historic documents this will prove harder to achieve.

Companies House – 3-month filing extension

Companies House has announced that companies can ask for a three-month extension of their accounts filing deadline if the accounts are going to be filed late due to Covid-19.  This applies to both private and public companies. The application to extend must be made before the due date for filing the accounts.  The statement from Companies House states that the extension is “automatic and immediate”.  The online form asks companies to include the reasons why more time is required and where the reason given is Covid-19 the extension should be granted without delay.


An extension will allow private limited companies up to 12 months to file their accounts after the year-end.  An extension to file tax returns late has not been granted so tax computations and returns will still need to be filed 12 months after the year-end. 

This may put considerable time pressure on the preparation of tax returns if the full extended period for filing the company’s accounts is needed.  Tax return preparation procedures and timetable may, therefore, need to be reconsidered.

Financial accounts – deferral for listed company accounts and guidance

Separately to the Companies House exemption, the Financial Reporting Council, Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) made a joint statement on 26 March 2020.

The FCA is permitting a delay in the publication of audited annual financial reports for listed entities from four to six months from the end of the financial year.  The FRC statement “urge[d] all those companies that feel it appropriate to utilise the additional 2 months”.

The FRC issued guidance to auditors and companies.


It is clear that most companies will need time to work through what the economic effects of Covid-19 will mean for financial statements.  The implications for carrying values of assets and recognition of deferred tax assets will not be the only area of focus. 

We, therefore, would expect considerable delays in the finalisation of some financial statements.

27 Mar 2020

Finance Bill Commentary

The Finance Bill was published last week alongside a number of new consultations.

Finance Bill

Non ring-fence corporation tax rate

The Finance Bill included confirmation that the non ring-fence rate of corporation tax for the year to 31 March 2021 is to be 19 per cent.  The Bill also repeals the provisions in an earlier Finance Act that was to reduce the rate to 17 per cent and has included a provision that sets the non-ring fence rate of corporation tax for the year to 31 March 2022 at 19 per cent.

The provision to increase the rate to 19 per cent was included in the resolutions passed by the House of Commons on Budget Day.  The Provisional Collection of Taxes Act 1968 applies to the corporation tax rate increase.   Therefore, this constitutes substantive enactment for IFRS and UK GAAP purposes and therefore will affect tax accounting for periods ended after the Budget Day resolution on 11 March.  For US GAAP purposes, the law has not yet been enacted and, as the second reading of the Bill has not yet been scheduled, is not expected to enacted (ie on Royal Assent) before 31 March 2020.


These changes had been announced previously and will have a limited effect on oil and gas businesses. There is no change to the rates of ring fence corporation tax or supplementary charge. Given the recent collapse in the oil price, the industry may want to lobby Government to reconsider these rates unless the price recovers in the short term.

Research and Development Expenditure Credit (RDEC)

The Finance Bill includes provision for the increase in the RDEC rate for non-ring fence activities from 12 per cent to 13 per cent for expenditure incurred after 1 April 2020.

While not included in the Finance Bill, the explanatory notes published alongside the Finance Bill confirm the ring-fence rate of 49 per cent is to be maintained.


It is disappointing but perhaps not surprising that the same increased incentive has not been offered to the upstream sector.


The Finance Bill includes some clarification amendments to the rules that deal with the introduction of IFRS 16 (lease accounting).  The amendments seek to deal with uncertainty where companies had implemented IFRS 16 early.  The changes seek to make it clear that the spreading rules that apply to the difference between the lease creditor and right of use asset also apply to early adopters of IFRS 16.

Other matters

HM Treasury also announced last week that the proposed changes to off-payroll workers will be deferred to 6 April 2021.  The announcement said that delay was due to the spread of COVID-19 and was to help businesses and individuals deal with the economic impact of COVID-19.  The announcement also made it clear that this represents only a delay of the introduction of the proposals and not a cancellation.

Although not of major significance for oil and gas companies, the relief under the structures and buildings capital allowance is being improved to allow costs to be claimed over 331/3 years rather than 50.

Rules limiting the use of carried-forward capital losses by companies, similar to those previously introduced for non-ring fence trading losses, are to be introduced with effect from 1 April 2020. Capital losses within ring fence companies are relatively unusual but losses on disposals of field interests are specifically excluded from the new rules.

Tax rules are to be amended to support UK investment in intangible fixed assets.  From 1 July 2020, a company can now claim relief on intangible fixed assets purchased from a non-UK group company.  However, oil licences and related intangibles remain excluded from the regime.

A Stamp Duty and Stamp Duty Reserve Tax anti-avoidance measure is being introduced to counteract certain contrived arrangements.  The measure will extend the market value rule to the transfer of unlisted shares to a connected company where the consideration received includes an issue of shares. Previously the rule had only applied to transfers of listed shares.  This measure is not expected to apply to commercial transactions.


Uncertain Tax Provisions

HMRC published a consultation on the notification of uncertain tax treatments proposal that was announced at the Budget.  Key elements of the proposals are set out below:

  • The rules are expected only to apply to large businesses; being defined as one which has turnover over £200m per annum and/or balance sheet assets of more than £2 billion. The current intention is to have a de minimis reporting threshold of £1 million of tax at stake per uncertain tax treatment per year.
  • The document states that an uncertain tax treatment is one where the business believes that HMRC may not agree with their interpretation of the legislation, case law, or guidance. It is expected that guidance will be issued to provide examples of areas that HMRC would expect notification.  The capital/revenue divide is included in the consultation document as an example of an area of common uncertainty.

The closing date for comments is 27 May 2020.

Tax advice market

HMRC published a call for evidence on “Raising standards in the tax advice market”.  The document follows the independent loan charge review that was published in December 2019.  The review found evidence that many taxpayers were influenced by some tax advisors that were promoting loan charge schemes.  The review highlighted that the tax advice market was not working and recommended that the Government publish their strategy to introduce a more effective system of oversight (which may include regulation of the tax advice market).

The call for evidence includes numerous options that could be implemented.

The closing date for comments is 28 May 2020.

LIBOR withdrawal

HMRC published a consultation on “The taxation impacts arising from the withdrawal of LIBOR”. LIBOR is to be withdrawn in 2021.

Many agreements between unrelated and related parties use LIBOR as a reference rate to determine the amount of interest to be charged on a financing arrangement.   It is anticipated that other reference rates will be used after the withdrawal of LIBOR but these other reference rates will not operate in the same way as LIBOR.

The accounting treatment of the changes to each financing arrangement will need to be considered carefully and that may have an impact on the taxation implications.  For example, where terms of a financing arrangement are amended that may result in a profit or loss being recognised and subject to tax.  Another area highlighted in the guidance is transfer pricing.

In addition to the amendments that will need to be made to financing arrangements, LIBOR is used in tax legislation (exclusively in the plant and machinery leasing code) and these references will need to be amended.

The closing date for comments is 28 May 2020.


The Finance Bill included no surprises for the industry. 

The consultations may be relevant for some and affected businesses have just over two months to contribute where appropriate. A number of these proposals could have a major impact on the way companies conduct their tax affairs and we will be examining these in more detail and discussing potential consequences with relevant clients prior to the consultation deadlines. 

19 Mar 2020


During these difficult times, we hope that all of our clients, contacts and colleagues are keeping well.

All of our staff are now working from home on a regular basis. This is something we have been doing on a lesser scale for a number of years and we are confident that, for now, we are able to continue to provide the same level of service as normal.

Most contact is by way of email but if you want to speak to any of our team they can be contacted on their mobile phone numbers below.

PHIL GREATREX                                                07712 880 458

PAUL ROGERSON                                             07736 498 846

ANDREW LISTER                                               07912 572 928

JANUSZ CETNAROWICZ                                    07736 498 847

IAN HACK                                                          07913 631 950

TAUSEEF ABSAR                                                07796 328 478

KATE BUSHELL                                                  07940 473 311

CHRIS WATERTON                                            07747 792 714

LEON SROKA                                                     07984 420 418


CW Energy LLP
19 March 2020