UK: UK Budget Briefing

This update summarises tax announcements made in the UK Budget on Wednesday 21 March which are likely to be most relevant to our clients. It is not a comprehensive summary and does not cover (in particular) many income tax measures, measures primarily relevant to small businesses or specific industries other than the oil and gas sector, nor does it cover non-tax announcements. More detail on certain specific measures will be available when the Finance Bill 2012 is published on 29 March.

In general, the Budget will be welcomed by businesses operating in the UK and non-UK businesses seeking to invest in the UK. There are also some positive announcements for oil and gas companies operating in the North Sea.

RATES

Mainstream corporation tax

Pursuant to the government's ambitions to create the most competitive tax system in the G20, the mainstream rate of corporation tax will be reduced from the current rate of 26 percent to 24 percent from 1 April 2012 (rather than reduced to 25 percent, as previously announced), with further reductions bringing the rate to 23 percent in April 2013 and 22 percent in April 2014.

North Sea oil and gas

The tax rates relating to UK and UK continental shelf oil and gas production are unchanged, with ring fence corporation tax at 30 percent and supplementary charge at 32 percent (and petroleum revenue tax, where applicable, at 50 percent).

Income tax

The top rate of income tax for individuals is to be reduced from 50 percent to 45 percent from 6 April 2013.

Bank levy

So that the overall tax charged on the banking sector is not reduced by the corporation tax decrease, the main bank levy rate (which applies by reference to certain liabilities on a bank's balance sheet) will be increased to 0.105 percent from 1 January 2013.

CORPORATE TAX

CFC reform

The government has confirmed that significant changes will be made to the UK's controlled foreign company (CFC) tax regime, under which income profits of non-UK companies can be attributed to UK controlling companies. This is another part of the government's plan to deliver a more competitive corporate tax system.

Key points from the latest draft of the legislation are as follows:

  • Whereas the current regime adopts an "all or nothing approach" (i.e. all profits of a CFC are apportioned to UK-controlling companies, unless an exemption applies), the new rules will provide that profits of CFCs will only be taxable if they pass certain tests referred to as "gateways," the overall effect of which is intended to take many offshore activities outside the scope of the CFC regime;
  • There are certain exemptions for finance profits of CFCs, which may reduce the effective rate of tax relevant to finance CFCs to 5.5 percent or, in certain circumstances, zero;
  • Changes will be made to the "exempt foreign branches" legislation, with the effect of applying the CFC rules to foreign branches of UK companies which have elected for exemption.

The new rules will have effect for CFCs with accounting periods beginning on or after 1 January 2013. They are likely to be of interest not only to UK-headed multinational groups, but also to non-UK headed groups looking at their overseas holding company and financing arrangements.

Patent box

The government has confirmed that it will be introducing a "patent box" regime from 1 April 2013, under which a reduced corporation tax rate of 10 percent will apply to patents and similar intellectual property.

OIL AND GAS

Application of supplementary charge to gains

The Finance Bill 2012 will include provisions, already announced with effect from 6 December 2011, to "clarify" that supplementary charge not only applies to oil and gas income, but also to any capital gains which are subject to ring fence corporation tax (the general view being that any such intention had not previously been properly covered by the legislation). A continuing contentious issue is the application of this "clarification" to gains "held over" from pre-6 December disposals which are yet to crystallise.

Restriction on decommissioning relief

As announced in last year's Budget, the Finance Bill 2012 is to include provisions to cap relief for decommissioning expenditure incurred after 21 March 2012 at 20 percent (notwithstanding the recent rise in the supplementary charge on profits to 32 percent).

Fair fuel stabiliser

Also in accordance with their stated intentions in Budget 2011, the government is to proceed in adopting a policy linking the rate of supplementary charge and the rate of fuel duty to the oil price with effect from 21 March 2012. The trigger price is to be set at £45 per barrel (approximately US$75 per barrel), with the consequence that if the oil price falls below this price (to be assessed annually in February), the subsequent Budget will announce a decrease in the rate of supplementary charge and an increase in fuel duty.

Decommissioning relief: securing the government's contribution

Considerable work has been underway for some time, undertaken on a joint basis by industry and government, to try and find a way of giving certainty to oil and gas companies on the rate of tax relief which will apply when decommissioning of North Sea installations occur. Greater certainty is seen as important to reduce the costs of giving security or otherwise provisioning for future liabilities and could potentially free up considerable capital and increase values and investment. The government has now formally announced its commitment to introduce legislation in the Finance Bill 2013 to allow it to sign contracts with companies to provide assurance on the rate of relief they will receive.

Field allowances

In view of the disincentive to development of new high-risk or small oil or gas fields caused by the high rate of supplementary charge, the government has announced its intention to extend and improve field allowances for supplementary charge purposes. The Finance Bill 2012 will include additional powers for HMRC to extend allowances to fields that have already been developed and new secondary legislation will, with effect from 21 March 2012, enhance the small field allowance and provide a new allowance (at £3 billion) to incentivise development of fields in the West of Shetland area.

OTHER SIGNIFICANT ENERGY-RELATED DEVELOPMENTS

Offshore taxing rights: non-oil and gas industry

The government is to engage with industry "to ensure a level playing field" in the taxation of activities in the UK sector of the continental shelf which are not within the scope of the existing oil tax regime (such as wind farms and gas storage). This seems likely to be intended to extend UK tax to non-UK residents engaged in such activities who would not otherwise be within the scope of UK taxation.

Carbon price floor

The government has confirmed that, from 1 April 2013, a "carbon price floor" will be implemented. The effect of this is to tax electricity generators using fossil fuels through the climate change levy (CCL) and fuel duty (currently fossil fuels that are used to generate electricity are generally exempt from the CCL). The tax will be applied through "carbon support price" rates (which are determined by reference to the carbon content of the fossil fuel and take account of the expected price of carbon) which are detailed in the Budget. The Budget also includes details of certain reliefs, including for combined heat and power stations.

ANTI-AVOIDANCE

GAAR

The government has announced that it intends to introduce a general anti-avoidance rule (GAAR), i.e. an overriding anti-avoidance rule which would apply to transactions. A GAAR was endorsed by a consultative group which published its conclusions in November 2011, and the draft legislation produced by that group will form the basis of a formal consultation. Interestingly, whereas the GAAR recommended by the consultative group applied to direct taxes (corporation tax, income tax, capital gains tax, and petroleum revenue tax), the GAAR proposed by the government will also cover stamp duty land tax (SDLT). Legislation is expected to be introduced in the Finance Bill 2013.

Residential property – SDLT and non-residents' CGT

Two significant proposals have been made in relation to SDLT, which apply to residential property (and not commercial property) only: (i) a new rate of 7 percent will apply from 22 March 2012 for residential properties over £2 million; and (ii) a new rate of 15 percent will apply for residential properties over £2 million purchased on or after 21 March 2012 by "non-natural persons." This latter measure is to discourage "enveloping," where high-value properties are put into companies with the intention of avoiding SDLT by selling via a company sale in the future. In order to address the position of high-value residential properties already in such a corporate envelope, the government is to consult on the introduction of an annual charge on such properties valued at over £2 million with a view to imposing such a charge from April 2013.

In addition, from April 2013, the UK capital gains tax rules will be extended to apply to gains on the disposal of UK residential property by non-resident "non-natural" persons. Along with individuals engaging in planning in this area, this could conceivably affect lenders seeking to enforce security.

FATCA

The government has announced that it will publish a discussion document to facilitate co-operation with the U.S. in relation to the U.S. Foreign Account Tax Compliance Act (FATCA) which will apply with effect from 1 January 2014. FATCA has a far-reaching impact as it potentially imposes withholding tax obligations on payments to and by certain non-U.S. "financial institutions" (which are defined very widely and include certain private equity funds and debt issuers).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions