The Chancellor delivered the Autumn Budget and Spending Review 2021 today. We set out below the key announcements that apply to the corporate sector, although no new measures are of direct relevance to the oil and gas sector.
Ring fence and supplementary charge to corporation tax rates
Despite the rise in the main tax rate as discussed below, there was no specific announcement on any changes to the oil tax rates. Therefore, the rates will continue to be those currently enacted being 30% for ring fence corporation tax and 10% for the supplementary charge to corporation tax.
It would have been easy, with the upcoming Glasgow COP 26 meeting, for the Government to be persuaded that the current high oil and gas prices should lead to a rise in ring-fenced tax rates. It is therefore welcome that the Chancellor has once again allowed a stable regime to remain in place. This can be seen as a strong signal that the need for tax stability has been heard by the Chancellor.
Research & Development expenditure
The announcement included two main changes to the R&D tax relief rules. These changes have been made following a consultation exercise that commenced in 2020.
First, as had been trailed, the scope of expenditure that can attract relief is to be extended to include data and cloud computing costs.
Second, the Government has announced that they will look to “refocus the reliefs towards innovation in the UK”. We expect this will mean that where R&D activities are conducted outside of the UK those expenditures will be prevented from attracting UK R&D relief.
The Chancellor announced in his speech that these changes are expected to be effective from April 2023.
The changes to the R&D relief rules may have some effect on UK oil and gas companies as some companies claim R&D relief for R&D activities that are conducted outside of the UK.
There was no announcement on combining the RDEC rules (that apply to larger businesses) with the R&D SME scheme. There had been concerns that the rules could be merged which may have been to the detriment for smaller companies claiming under the higher value SME scheme.
Capital allowances – Annual Investment Allowance
The AIA allows certain qualifying expenditures to qualify for immediate 100% relief. The current allowance was due to end on 31 December 2021. However, the £1,000,000 per annum allowance is to be extended to 31 March 2023.
Notification of uncertain tax treatments for larger businesses
Alongside the Autumn Budget 2021 documents, an HMRC policy paper was published that outlined the notification of uncertain tax treatment rules that will be introduced with effect from April 2021. The policy paper did not include any new proposals or further guidance on how the rules will be interpreted by HMRC.
Repeal of cross border group relief
In the continuing effort to remove EU-inspired legislation from the UK tax rules, the abolition of cross border group relief was announced with immediate effect. These rules allowed, in limited circumstances, losses of EEA operations to be used to reduce UK corporation tax profits.
CW Energy LLP
October 27 2021