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Autumn Budget 2017: Oil and Gas

Autumn Budget 2017: Oil and Gas

What the Autumn Budget 2017 means for Oil and Gas.

Claire Angell

Partner and UK Head of Oil & Gas

KPMG in the UK


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 Autumn Budget 2017: Oil and Gas - black door with autumn leaves

On Wednesday 22 November, the Chancellor announced that Government will introduce the ability to transfer tax history with the sale of an oil field. The inability to access tax relief has been seen as a barrier to new entrants to the North Sea and the Chancellor is aiming to encourage further investment, especially in late life assets.

Transferable Tax History (TTH)


The operation of tax relief for decommissioning expenditure has been identified by industry as a barrier to the transfer of assets in the North Sea.

Under the current rules, tax relief for decommissioning expenditure is based on the tax history of the company incurring the expenditure. Losses are carried back against taxable profits of the company for ring fence Corporation Tax and the Supplementary Charge to Corporation Tax.

This has been seen a deterrent to new entrants. For example, a new entrant buying a late life asset may only pay limited amounts of tax as compared to the cost of decommissioning the oil field. However, an existing company who has had a presence in the North Sea for some time would potentially be able to access a sizeable tax history and claim full tax relief.

The ability to transfer tax history is an unprecedented concept for UK tax legislation and shows once again, as evidenced by the introduction of the Decommissioning Relief Deed that HM Treasury are willing to be innovative in their support for the oil and gas sector.

How TTH is expected to operate

The quantum of tax history to be transferred will be agreed between the buyer and seller of the field (and is optional), subject to overriding safeguards including:

  • a cap by reference to the total amount of tax the vendor company has paid;
  • calculating the TTH by reference to the decommissioning cost of a field, as demonstrated in a Decommissioning Security Agreement and the quantum to be independently verified.
    The acquiring company will be required to track the profits of the transferred field.

The TTH will be activated only when the transferred field ceases production and to the extent that the field has incurred more decommissioning costs than the profit in the post-acquisition period. This prevents the transferred tax capacity being utilised by losses from another field.

Companies will be able to transfer tax histories within their group as part of pre-transaction restructuring so long as it is implemented shortly before a third party transaction.

TTHs will be able to transfer the field multiple times if further transactions are undertaken.


Draft legislation will be published in Spring 2018 for technical consultation.

The legislation is then expected to be included in Finance Act 2018-19.

It will be effective for transfers of oil fields which receive Oil and Gas Authority approval after 1 November 2018.

PRT relief for decommissioning expenditure

A separate consultation will be undertaken to explore relief for petroleum revenue tax (‘PRT’) for decommissioning costs where the liability is retained by a previous licence holder.

Two options are being considered to achieve this outcome:

  • a deemed transfer of the licence back to the vendor at the cessation of production; or 
  • a change to the subsidy rules to allow for a claim for relief.

The timeline for legislation and implementation will follow that of TTH.

Tariff receipts

The definition of tariff receipts will be amended to clarify that there is no difference in corporation tax treatment of tariff income arising from PRT and non-PRT assets.

Draft legislation is expected in Finance Bill 2017 – 2018 with the change effective from 1 December 2017.

Lease taxation

Government has been consulting on the tax rules for leases following the finalisation of IFRS 16.

Government had already announced its intention to leave the plant and machinery leasing regime as close to the current system as possible. Today we heard that there will be two consultations published on 1 December:

  • The first consultation will consider the impact of the new accounting rules on the corporation tax treatment of leased assets for lessees. 
  • The second consultation will consider the impact on the new corporate interest restriction rules.

For the oil and gas industry two areas will be important:

  • the impact of accounting changes meaning there will be increased interest charges from a Supplementary Charge to Corporation Tax perspective; and
  • the preservation of first year allowances.

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