Background Note
25.In addition to corporation tax (CT), oil and gas companies are also subject to an additional tax, the supplementary charge (SC), on adjusted ring fence profits arising from oil-related activities. For the oil and gas industry, CT is set at 30% for profits of more than £1.5m and 19% (the small profits rate) for profits of more than £300k. The SC is set at 32%.
26.Companies are allowed to set qualifying expenditure against profits for CT purposes. For companies engaged in a trade where it may take some years to show a profit, the value of the expenditure will be reduced by the time they come to be utilised.
27.The oil and gas trade is subject to high start-up costs and a relatively lengthy period of likely unprofitability. RFES currently allows companies inside the oil and gas ring fence to uplift their ring fence losses or, in the period before they are trading, their “qualifying pre-commencement expenditure”, by 10% for up to 6 accounting periods to maintain their time value until they can be offset against future profits.
28.Presently, companies may claim further supplement under Extended Ring Fence Expenditure Supplement against expenditure, losses and supplement relating to onshore oil and gas related activities which were generated after 5 December 2013. This supplement may be claimed in respect of 4 periods at a rate of 10%.
29.A call for evidence entitled Review of the Oil and Gas Fiscal Regime was launched on 14 July 2014 and closed on 3 October 2014. The initial findings including a summary of responses were published on 4 December 2014, entitled Driving Investment – a plan to reform the oil and gas fiscal regime.
30.This section and Schedule extend the number of accounting periods for which companies can claim RFES from 6 to 10 for expenditure incurred and losses and supplement generated after 5 December 2013. This recognises the extended period before they are able to utilise those amounts and will allow companies to maintain the value of their expenditure for longer.
