Derek Leith, EY’s Global oil and gas tax leader comments on the 3 March Budget:
“It would be an unusual Budget if the Chancellor didn’t find some space for an oil and gas measure: oil and gas has only been absent from a UK Budget on two occasions in the past 25 years. Budget 2021 didn’t disappoint with a specific clarification on the detailed rules for oil and gas decommissioning relief. There are also some knock-on effects of the Chancellor’s announcements on the corporation tax rate, the super deduction for investment, and the extended loss carry-back.
“Papers accompanying the Budget included further changes to the corporation tax rules on the decommissioning of UK oil and gas assets. I’m sure clarification of the decommissioning tax rules will be welcomed by the sector as both industry and the Treasury are incentivised to see activities carried out efficiently and at the lowest cost.
“There will be an increase in the rate of corporation tax for businesses with taxable profits of over £250,000, from the current 19% rate to 25% from 1 April 2023. The rate of corporation tax for oil and gas companies active in the UK and UKCS remains at 30% with the supplementary charge an additional 10%. To the extent oil and gas companies have income that falls outside the upstream regime, such as interest arising from cash balances, they will be liable at the increased rate from 2023.
“The heavily trailed increase in corporation tax rate, quietly abandoning the current policy to have the lowest corporate tax rate in the G20 in favour of the lowest rate in the G7, is no surprise. Some of the sting is taken out by delaying the change for two years. The extended loss carry-back will be welcomed by smaller businesses where it will have a material impact. The super-deduction will also be welcome but unsurprisingly it is time-limited to the period up to 31 March 2023 so doesn’t apply when the tax rate increased from 19% to 25%.”
Read the latest issue of World Pipelines magazine for pipeline news, project stories, industry insight and technical articles.
The March 2021 issue of World Pipelines includes: a regional report on pipeline projects in Asia-Pacific; a summary of the latest and best construction equipment courtesy of the annual Heavy Equipment Review; a welding-focused Q&A; and technical articles on hot tapping, sustainable steel and decommissioning.
Read the article online at: https://www.worldpipelines.com/business-news/05032021/ey-clarification-on-decommissioning-tax-rules-welcomed/