Economic Report 2016 - Oil & Gas UK

10.2 The Balance of Taxes and Allowances As upstream profits are always taxed separately under the ring fence regime at a minimum rate of 30 per cent, the tax burden, even in instances where companies benefit from the Investment Allowance, remains higher than for all other parts of the UK economy. The allowances therefore do not represent a subsidy for the industry, they seek to partially alleviate the additional layer of tax that applies to UKCS activity only. Furthermore, companies may also have taxable activities outside the ring fence, for example downstream businesses on which they will pay the normal 20 per cent CT. Organisations cannot offset their profits or losses between the downstream and upstream regimes to reduce their overall tax liability. 10.3 Current Tax Issues Impeding MER UK Profitability and therefore the direct production taxes paid by the UK offshore oil and gas sector in recent years have declined sharply. In 2013-14, the sector contributed tax receipts on upstream profits of £4.7 billion. For the current tax year of 2016-17, tax receipts are forecast to be negative by around £1 billion. This is due to rising decommissioning activity, pressure on operating margins, and historic investment and losses built up in the past.

1

2

3

4

5

Figure 57: Government Revenues from Oil and Gas Production

6

35

Royalty Supplementary Charge

30

Ring Fence Corporation Tax Advance Corporation Tax Supplementary Petroleum Duty Petroleum Revenue Tax

7

25

20

8

15

10

9

(£ Billion - 2015/16 Money)

5

0

Government Revenues from Oil and Gas Production

10

-5

1968-69

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

2012-13

2014-15

Source: HM Treasury, Office for Budget Responsibility

11

The allowances do not represent a subsidy for the industry, they seek to partially alleviate the additional layer of tax that applies to UKCS activity only.

79