Oil and gas taxation: minor amendments to onshore, cluster area and investment allowances
Published 16 March 2016
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Who is likely to be affected
Oil and gas companies that operate in the UK or on the UK Continental Shelf (UKCS).
General description of the measure
This measure will amend the onshore, cluster area, and investment allowances to update the conditions which disqualify expenditure, incurred on the acquisition of an asset in certain circumstances, from generating allowance.
Policy objective
The allowances support the government’s objective of providing the right conditions for business to invest in the UK and UKCS to maximise the economic recovery of the UK’s oil and gas resources, at a time when the North Sea industry is facing considerable challenges.
This measure ensures the legislation works as intended and protects the Exchequer by:
- amending the onshore allowance to include the disqualifying conditions relating to the acquisition of an asset, to provide parity with the other allowances
- amending the investment allowance to clarify the circumstances in which investment allowance can be generated
- updating the investment and cluster area allowances, to expand the disqualifying conditions following the extension of the allowances to include some leasing expenditure
Background to the measure
The onshore allowance was introduced from 5 December 2013, and reduces the amount adjusted ring fence profits subject to the supplementary charge. The amount of the reduction is equal to 75% of capital expenditure.
Investment and cluster area allowances were introduced from 1 April 2015 and 3 December 2014 respectively and, similar to the onshore allowance, reduce the amount of adjusted ring fence profits subject to the supplementary charge, equal to 62.5% of the investment expenditure.
At Summer Budget 2015, the Chancellor announced that the definition of investment expenditure would be extended to include certain discretionary non-capital expenditure and payments under long term leases. The draft legislation was published for a technical consultation on 16 December 2015, which closed on 27 January 2016 and was effective from 8 October 2015.
Detailed proposal
Operative date
This measure will have effect for expenditure incurred on and after 16 March 2016.
Current law
The primary legislation covering the onshore, investment and cluster area allowances can be found in Chapters 6A, 8 and 9 in Part 8 of the Corporation Tax Act 2010 (CTA 2010).
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to introduce new section 356CAA of CTA 2010 to introduce a disqualifying condition to prevent the generation of onshore allowance on the acquisition of an asset on which allowance was previously generated.
Legislation will be introduced in Finance Bill 2016 to amend section 356JFA and section 332D of CTA 2010 to introduce a disqualifying condition to prevent the generation of investment allowance on the acquisition of an asset on which allowance was previously generated through the incurring of leasing expenditure on that asset.
Legislation will be introduced in Finance Bill 2016 to amend section 332D of CTA 2010 to introduce a disqualifying condition to prevent the generation of investment allowance on the acquisition of an asset prior to the determination of an oil field, where that asset has already generated allowance.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact. This measure supports the Exchequer in its commitment to protect revenue.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
There is no impact on individuals, households as these changes affect oil and gas companies only.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is considered to have no impact on any equality groups.
Impact on business including civil society organisations
This measure will have no impact on businesses who are undertaking normal commercial transactions; it will only impact on businesses that are seeking to use the legislation in a way not intended. There is no impact on civil society organisations.
Small and micro business assessment: the change applies only to oil and gas companies operating in the UK, so this measure is expected to have no impact on small and micro businesses.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no additional costs or savings for HMRC in implementing these changes.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups and the monitoring of tax receipts from and activity in the North Sea oil and gas sector.
Further advice
If you have any questions about this change, please contact Nicola Garrod on Telephone: 03000 589251 or email: nicola.garrod@hmrc.gsi.gov.uk.