Budget 2016: Support for the Oil & Gas industry | KPMG | UK

Budget 2016: Support for the Oil & Gas industry

Budget 2016: Support for the Oil & Gas industry

The Chancellor announced what he described as a “radical package” which aims to provide support for the UK oil and gas industry.


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Budget 2016

The Chancellor announced what he described as a “radical package” which aims to provide support for the UK oil and gas industry.

This was delivered primarily through a 10% reduction in the rate of the Supplementary Charge to Corporation Tax and the effective abolition of Petroleum Revenue Tax, estimated to cost the Government £1bn over the next five years. This particularly supports late life assets that provide critical infrastructure in the North Sea.  Such assets were suffering a tax rate of 81% 2 years ago, now it is 40%.

Other measures announced was the inclusion of tariff income within the investment allowance regime and clarification on decommissioning tax relief rules.

In wider announcements, the Chancellor provided more information on the UK’s implementation of the OECD’s Base Erosion and Profit Shifting recommendations. Notably restrictions on tax relief for interest by reference to income will be introduced. How this will impact the oil and gas sector is subject to consultation.

Supplementary Charge to Corporation Tax

The supplementary charge to corporation tax is to be halved to 10% effective from 1 January 2016. The overall rate of corporation tax for profits in the ring fence remains at 30%, bringing the overall rate for companies in the ring fence down to 40%.

Petroleum Revenue Tax

Petroleum Revenue Tax (‘PRT’) has been ‘effectively abolished’ through a reduction in the rate of PRT to 0%.  This change takes effect for accounting periods ending after 31 December 2015.

The rate reduction preserves the ability to carry back losses arising on decommissioning against historic PRT payments which had been guaranteed under the Decommissioning Relief Deeds.

PRT applies to older fields where development consent was granted on or after 16 March 1993 and hence the reduction supports these late life assets which provide critical infrastructure to the North Sea.


HMRC has clarified its position on the availability of tax relief for decommissioning where a company disposes of an asset but retains the decommissioning liability for plant and machinery. Broadly, HMRC’s view is that where the company incurs “general decommissioning expenditure” and is directly incurring the decommissioning costs then conditions to qualify for tax relief can be met even where an interest in a licence is not retained.

There is also a commitment for the Government to continue looking at whether amendments to the current decommissioning tax relief regime could be amended to encourage transfer of late-life assets.

Investment allowances

Secondary legislation is to be introduced to enable Government to extend the definition of “relevant income” which activates investment allowances.  The announcements today indicated that the intention to include tariff income within the definition, a measure which supports North Sea infrastructure.

Interest deduction restrictions

The Chancellor announced a “fixed ratio rule” which caps the amount of relief for interest costs to 30% of a company’s EBITDA. There is also a “group ratio rule” which will take into account a group’s global indebtedness, which should support highly leveraged industries.The Budget document states that the Government will consult on the application of the new rules to “ensure that existing commercial arrangements within the ring fence are not adversely affected”. 


The Chancellor also announced two measures in respect of losses:

  • firstly that carried losses arising after 1 April 2017 can be used against other companies within a group; and
  • carried forward losses will only be available for offset against 50% of profits over £5 million from 1 April 2017.

HM Treasury have confirmed that these changes do not apply to losses within the ring fence corporation tax regime.

Accounting for today’s changes

Finance Bill 2016 will be published on 24 March 2016. As it is not expected that these measures will be substantively enacted by the end of March 2016 companies will not account for these changes in Q1 reporting.

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