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Osborne Slashes North Sea Oil, Gas Taxes

by Robert Lee,, London

17 March 2016

The UK Government will lower the tax burden on the North Sea oil and gas industry by permanently zero rating the Petroleum Revenue Tax (PRT) and halving the Supplementary Charge to 10 percent.

The changes were announced as part of Chancellor George Osborne's 2016 Budget. The PRT, payable in respect of profits from oil and gas production in the UK and UK Continental Shelf (UKCS), is currently 35 percent. The Supplementary Charge, payable in respect of adjusted ring-fenced profits, is currently 20 percent.

The reduction in the PRT rate will have effect for all chargeable periods ending after December 31, 2015. The reduction in the Supplementary Charge will have effect for accounting periods commencing on and after January 1, 2016.

The Budget also provides HM Revenue and Customs (HMRC) with the power to extend the definition of "relevant income" to tariff income for the cluster area and investment allowances.

According to a new HMRC brief, "The cuts to headline tax rates will simplify the tax regime for investors, and level the playing field between investment opportunities in older fields and infrastructure and new developments. They will increase the attractiveness of projects in the UKCS relative to investment opportunities elsewhere, encouraging investment in the UK and UKCS, and could lead to increased production of oil and gas, helping to increase the UK's energy security, balance of payments, and supporting jobs and supply chain opportunities."

"The extension to relevant income will encourage investment in infrastructure maintained for third parties. Enabling allowances to be activated by tariff income (payments by a third party for access) will improve the incentive for owners to maintain investment in infrastructure which is critical to the protection of existing production and development of new projects."

Reacting to the announcement, Deirdre Michie, Chief Executive of industry association Oil & Gas UK, said: "We welcome these measures as they will build on the industry's achievements in improving efficiency in the face of low oil prices, boosting the sector's competitiveness, and helping to restore investor confidence."

She added: "Oil & Gas UK, amongst a number of organizations, has been calling on the Government to support the competitiveness of UK oil and gas production and lighten the burden of special taxes paid by the sector in order to attract international investment back into the UK and sustain activity in the years ahead. As the basin matures, the offshore oil and gas industry will continue to improve its cost base and become more efficient. The tax changes announced in [the] Budget compliment the sector's own efforts to secure an enduring industry."

TAGS: tax | investment | energy | accounting | United Kingdom | oil and gas | offshore | tax rates | HM Revenue and Customs (HMRC) | trade association | HM Revenue and Customs (HMRC) | trade

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