Skip to main content
Insight

UK Budget: tax break for North Sea fields & venture capital relief curtailed for certain renewables

In the UK's annual budget speech on 19 March 2014, the Chancellor announced that the government will consult on the introduction of a new North Sea tax allowance. Its aim would be to encourage In the UK's annual budget speech on 19 March 2014, the Chancellor announced that the government will consult on the introduction of a new North Sea tax allowance. Its aim would be to encourage billions of pounds of extra investment in the UK’s maturing oil & gas industry. The proposed incentive relates to the development of ultra-high pressure, high temperature fields (u-HPHT) that typically demand higher spending to exploit because of the technical difficulties of bringing hydrocarbons to shore.

The Ultra-High Pressure, High-Temperature Cluster Allowance would exempt a portion of a company's profits from the Supplementary Charge (which is currently 32%).  The amount of profit exempt will equal at least 62.5% of a company's qualifying capital on u-HPHT projects. It is expected HM Treasury will launch a consultation in relation to the Ultra-High Pressure, High-Temperature Cluster Allowance over the summer of 2014, and that the allowance will be included in Finance Bill 2015.  This allowance will be similar in structure to the onshore allowance announced in the Autumn Statement (and reconfirmed in this year's Budget) that we reported previously here.

Maersk Oil and BG Group have announced that the new u-HPHT allowance will help enable the development of two new projects, which will lead to investment of £6 billion across new fields.  They estimate that these two big projects will create more than 700 new jobs and close to 8,000 more jobs will be supported along the supply chain. These jobs will be spread across the country, with about half likely to be in Scotland.

The Chancellor also said the government would take forward all the recommendations of Sir Ian Wood's recent report and that the government would review the tax regime for the entire oil & gas sector to make sure it is fit for purpose having regard to the maturing nature of the asset.

Aside from his measures affecting the oil and gas industries, the Chancellor also announced that investment in companies benefiting from Renewables Obligation Certificates and/or the Renewable Heat Incentive scheme with effect from Royal Assent of Finance Bill 2014 will not be eligible for EIS (enterprise investment scheme) or SEIS (seed enterprise investment scheme) relief, or for VCT (venture capital trust) relief.  The renewables sector, particularly solar and wind projects, has in recent times benefited from substantial venture capital investment and this change, which is understandable in terms of the policy of the reliefs (which are aimed at investing in risk opportunities, rather than those backed by government subsidies producing a reliable income stream), may have a marked effect on access to and the nature of funding in this area.

Click here for a link to the UK Budget Speech

Sign up to our email digest

Click to subscribe or manage your email preferences.

SUBSCRIBE