The Budget contained a number of surprise developments that are likely to be of interest to the energy, mining and renewables sector. These include a radical set of measures which are intended to assist the offshore oil and gas sector, and some significant business energy tax reforms.
However, there were also wider changes to the taxation of large corporates that will affect many sectors. These Budget announcements were as follows:
- Changes to corporation tax loss relief aimed at making these rules more flexible, but also limiting the relief for larger corporates. For losses incurred on or after 1 April 2017, companies will be able to use carried forward losses against profits from other income streams and other companies within a group. Currently such losses can only be offset against trading profits relating to the same trade arising in the same company. However, to the extent that profits are in excess of £5 million, it will only be possible to offset 50% of the profits using tax trading losses brought forward. The rule seems to mirror a similar restriction, which has been in force in Germany for a number of years. It effectively extends the restriction that was originally introduced only for the tax losses of banks to all other sectors.
- A cap on the amount of tax relief for interest payable of 30% of taxable earnings in the UK, or based on the net interest earnings ratio of the worldwide group. There will be a threshold limit of £2 million net UK interest expense. This is very similar to the ‘earnings striping’ rule already in force in a number of other countries, including some Western European nations and the United States. Further details are yet to be announced.
- Radical new measures to support the oil and gas sector. The Government will:
- effectively abolish petroleum revenue tax by permanently reducing the rate from 35% to 0% with effect from 1 January 2016;
- reduce the Supplementary Charge from 20% to 10% with effect from 1 January 2016;
- provide a further £20 million of funding for another round of seismic surveys in 2016-17, as announced in January;
- extend the Investment and Cluster Area Allowances to include tariff income in order to encourage investment in infrastructure maintained for the benefit of third parties;
- provide more certainty that companies will be entitled to tax relief on de-commissioning costs when they retain de-commissioning liabilities for an asset after a sale;
- work further with the Oil and Gas Authority to reduce overall de-commissioning costs;
- consider proposals for using the UK Guarantees Scheme for infrastructure where it could help secure new investment in assets of strategic importance to maximise economic recovery of oil and gas.
- Significant business energy tax reforms, in response to the business energy efficiency tax review. To simplify the landscape and drive business energy efficiency the Government will:
- abolish the CRC energy efficiency scheme (CRC) following the 2018-19 compliance year. It will streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers, as opposed to CRC participants being required to forecast energy use, buy and surrender allowances;
- increase the Climate Change Levy (CCL) from 2019, to recover the revenue from abolishing the CRC;
- rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in electricity generation, moving to a ratio of 2.5:1 (electricity: gas) from April 2019. In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 (electricity: gas) rates by 2025;
- keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place until at least 2023, ensuring energy intensive industries remain protected. From April 2019, the CCL discount available to CCA participants will increase so that they pay no more than an RPI increase;
- Cap Carbon Price Support (CPS) rates at £18 t/CO2 from 2016-17 to 2019-20, with the aim of limiting competitive disadvantage to British businesses. Due to the continued low price of the EU Emissions Trading System (EU ETS), the Government is maintaining the cap on CPS rates at £18 t/CO2, uprating this with inflation in 2020 21 in order to continue protecting businesses.
- A further reduction in the rate of corporation tax, which will now be 17% from 1 April 2020, rather than 18%.
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