CW Energy LLP

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.