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79
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2
3
4
5
6
7
8
9
10
11
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.
Figure 57: Government Revenues from Oil and Gas Production
-5
0
5
10
15
20
25
30
35
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
Government Revenues from Oil and Gas Production
(£ Billion - 2015/16 Money)
Royalty
Supplementary Charge
Ring Fence Corporation Tax
Advance Corporation Tax
Supplementary Petroleum Duty
Petroleum Revenue Tax
Source: HM Treasury, Office for Budget Responsibility
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.