Last week saw the publication of the latest proposed amendments to the Finance Bill, including those in relation to offshore bareboat chartering.
In our commentary on the Budget we noted that revised provisions in relation to the new rules on offshore bareboat chartering were to be published after the Budget to reflect the narrowing of the scope of the legislation from that originally proposed in December. However the draft clauses as published seemed to have potentially wider application than the stated scope.
To recap, the proposed legislation defines certain profits of offshore contractors and then;
- creates a new “ring fence” for these contractors’ profits and
- caps the amount in respect of any relevant bareboat lease payments which can be allowed as a deduction against those ring fence profits.
The latest published drafts reflect changes to both these elements.
The contractors’ profits targeted are defined in relation to the income from certain assets, and industry lobbying has successfully narrowed the scope of the proposed legislation.
The government undertook to restrict the affected profits to those derived from accommodation vessels and drilling rigs although the draft legislation itself was more widely drawn.
The latest amendments reflect a change to the previous draft to address concerns that any asset with accommodation facilities was potentially caught.
Under the revised drafting the rules will only apply where the asset is a structure that can a) be used for drilling, or b) used to provide accommodation for individuals working on another structure used in connection with oil exploration or production, and the use for accommodation is not incidental to some other use.
While HMRC has stated that FPSOs are not meant to be caught by these measures, and the concern that they would be brought in if accommodation was available on the vessel has been eliminated, it is still possible that they could be caught if they can be used for drilling purposes.
The calculation of the cap has been further refined. The cap is calculated in part by reference to expenditure on the asset and the latest draft specifically addresses the position where there is capital expenditure on the asset in, or the asset is acquired part way through, the relevant accounting period, and allows the cap to increase to reflect this expenditure.
The provisions have also been amended to provide that any prior expenditure that relates to anything that is no longer part of the asset is excluded from the calculation of the cap.
While these amendments to the draft clauses are to be welcomed there are still some areas of concern, in addition to the drilling capability issue referred to above, that have been raised by industry, which have not been addressed. However it would seem that these provisions are now in their final form and any problems that arise in practice will need to be raised with HMRC when the operation of these rules is reviewed next year.
CW Energy LLP
July 3 2014