UK: UK Autumn Statement And Draft Finance Bill Briefing

Last Updated: 20 December 2012
Article by Michael Thompson, Jenny E. Doak and Claire Harrington-Greenwood

Following the UK Chancellor's Autumn Statement on Wednesday 5 December 2012, draft provisions of the Finance Bill 2013 were published on Tuesday 11 December. This update summarises tax announcements which are likely to be most relevant to our practice. It is not a comprehensive summary and does not cover (in particular) many measures primarily relevant to individuals, small businesses, or specific industries other than the oil and gas sector.


Mainstream corporation tax

The main corporation tax rate will be reduced from 24 percent to 23 percent from April 2013 (as previously announced in the March 2012 Budget), but the Chancellor has announced a further reduction to bring it to 21 percent from April 2014. The Chancellor emphasised that this would be the lowest rate of any major western economy and "is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business."

North Sea oil and gas

There is no change in the tax rates relating to UK and UK continental shelf oil and gas production, with ring fence corporation tax remaining at 30 percent and supplementary charge at 32 percent (and petroleum revenue tax, where applicable, at 50 percent).

Income tax

As previously announced, the top rate of income tax for individuals is to be reduced from 50 percent to 45 percent from 6 April 2013.

Bank levy

The main bank levy rate (which applies by reference to certain liabilities on a bank's balance sheet) will increase to 0.130 percent from 1 January 2013 (up from 0.105 percent announced in the March 2012 Budget).


Decommissioning relief deeds

In line with its intention, as announced in the March 2012 Budget, to provide some certainty to oil and gas companies operating in the UK and UK continental shelf on the level of tax relief they will obtain for future decommissioning costs, the government has now released a draft of the contract which it proposes to enter into with companies for this purpose.

Essentially, the government will agree to pay an amount equal to any shortfall in the relief that is actually obtained as compared with a reference amount. The calculation of this reference amount depends on whether the decommissioning costs are additional costs picked up as a result of the default of another party or are simply the expected costs of the relevant company attributable to its own interest as licensee.

In a default situation, the calculation of the shortfall payment is to be made by reference to the legislative position as at the time of enactment of the Finance Act 2013 with a view to ensuring that provision of security for potential default can be made in future by reference only to the expected costs net of predictable tax relief (as opposed to on a gross cost basis). It is hoped that this will free up capital for new investment and facilitate the acquisition of late life field interests by smaller companies. 

In a non-default situation, the provision is less generous and intended only to give assurance that companies will not be caught out by a future government abolishing petroleum revenue tax before the decommissioning relief for that tax is crystallised or placing any additional cap on relief for corporation tax and supplementary charge purposes. This is intended to remove some key uncertainties which currently exist for companies when considering whether or not to invest in extending field life.

The draft deed has been released as part of a package which includes various proposed legislative changes designed both to clarify and extend the scope of decommissioning relief and to prevent any abuse of the new rules to obtain an unintended benefit at the cost of the Exchequer.

Shale gas

The government repeated an announcement, first made in October, that it will be consulting with industry on a new targeted tax regime for shale gas. V&E is to be involved in this process.  

Field allowances

The government reconfirmed the introduction of two new field allowances for large shallow-water gas fields and certain existing fields (brown fields). These are among a number of types of relief from supplementary charge which have been announced to encourage development of fields which are otherwise marginal for technical or economic reasons.

Carbon price floor

Further legislation is proposed to clarify the workings of the carbon price floor (CPF), effectively a levy on the use of fossil fuels (other than oil) to generate electricity. The CPF is due to come into effect from April 2013.   


Tax avoidance and evasion has been in the spotlight in the UK media for a number of months and it is not surprising that the government has responded in the Autumn Statement and in draft legislation. However, many of the proposed measures have been announced previously and it seems likely that international action will be required to address some of the concerns raised recently in relation to "profit-shifting" activities of multinational groups. 

As well as providing additional funding and resources for tackling tax avoidance and evasion, the government's proposals include the following measures:

General anti-abuse rule

The government has published draft legislation for the new general anti-abuse rule (GAAR), together with guidance on the scope of the GAAR and detailed examples of when the GAAR will apply in the context of different taxes.

The GAAR will apply to most UK taxes (with the notable exceptions of VAT, stamp duty, and stamp duty reserve tax) and is intended to catch only artificial and abusive avoidance, rather than being a "broad spectrum" anti-avoidance rule which is found in some other jurisdictions. 

The GAAR will apply to arrangements entered into on or after Royal Assent to the Finance Bill 2013 (expected to be in Summer 2013).

Increased international efforts to deal with profit shifting

The government has committed to provide additional resources to the Organisation for Economic Co-operation and Development (OECD), alongside France and Germany, to speed up international efforts on dealing with profit shifting and the erosion of the corporate tax base at a global level. The Chancellor said that he would make the prevention of "artificial transfers of profit to tax havens" an important priority of the UK's G8 Presidency next year.


The Finance Bill 2013 will provide the Treasury with the power to introduce regulations giving effect to the inter-governmental agreement signed on 12 September 2012 between the UK and the U.S. to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA). FATCA is wide-reaching legislation which requires certain non-U.S. "financial institutions" (defined widely) to pass information about accounts of U.S. persons to the U.S. Internal Revenue Service or suffer a 30 percent U.S. withholding tax on U.S. source income. 

The inter-governmental agreement seeks to enable UK businesses to be treated as FATCA-compliant if they provide information to HM Revenue and Customs, rather than the U.S. Internal Revenue Service. It also seeks to address issues that FATCA information provision requirements would otherwise breach UK laws on matters such as data protection and confidentiality. The U.S. will also provide the UK with reciprocal data on the U.S. accounts of UK persons.

Enhanced tax information sharing agreements

On 5 December 2012, the government announced that it will seek to enter into information exchange agreements with other jurisdictions similar to the "FATCA" agreement entered into with the U.S. On 7 December, it was announced that the UK would sign an agreement with the Isle of Man closely based on the UK/U.S. FATCA agreement. It is understood that the UK is also in discussions with Jersey and Guernsey about enhanced information exchange.


Research and Development Credits

As part of the government's measures to increase the attractiveness of the UK, legislation will be introduced to provide an "above the line" research and development (R&D) credit. Under current law, relief for R&D expenditure is given as an additional deduction in calculating profits or losses (known as a "super-deduction") which, for large companies, provides a deduction of 130 percent for qualifying expenditure.

Under the proposed changes, large companies will be able to claim R&D relief as a taxable credit to the value of 9.1 percent of their qualifying R&D expenditure. To the extent it cannot be offset against a tax liability, the credit will be payable to companies net of tax on the receipt. The new rules will initially be optional, but will fully replace the existing rules from 1 April 2016.

Companies within the oil and gas ring-fence regime will be able to claim the above the line credit at 49 percent, rather than 9.1 percent. This is to take account of the fact that they are subject to a combined corporation tax and supplementary charge of 62 percent (rather than the lower corporation tax rate).   


A new "employee shareholder" employment status will be introduced with effect from April 2013. To adopt this status, individuals must acquire shares in their employer worth at least £2,000 and must relinquish certain employment protections and rights normally enjoyed by employees. The draft Finance Bill provisions include an exemption from capital gains tax on disposals of up to £50,000 worth of employee shareholder shares from 6 April 2013 (this exemption does not apply in certain situations, including where the employee has a 25 percent or greater interest in the employer).

The government has announced that it is considering ways to reduce income tax and national insurance contributions on the acquisition of shares by employee shareholders.

Originally published in V&E Tax Update E-communication, December 12, 2012.

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.

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