North Sea Tax – The Budget Announcement 17 April 2002
The 2002 Budget changes significantly altered the North Sea Tax regime. Here is a short overview of the changes. A more detailed analysis of the changes now enacted in Finance Act 2002 follows:
Supplementary Charge on Ring Fence Trades: On 17 April 2002 the Chancellor of the Exchequer announced that companies producing oil and gas in the UK or on the UK Continental Shelf (UKCS) would pay a supplementary charge of 10 per cent on the profits from companies’ ring fence trades in addition to the 30 per cent corporation tax already payable on these profits. The charge will be calculated on virtually the same basis as ring fence corporation tax, and administered in the same way as corporation tax. Companies will pay the supplementary charge on ring fence profits at the same time as their general corporation tax liability, but special rules for instalment payments will cover the transitional period (i.e. the accounting period that includes Budget day). These special rules ensure that no underpayment of instalments should arise by virtue of the introduction of the special charge.
Capital Allowances : The Budget announcement also provided for an enhanced first year capital allowance to be available for all ring fence capital expenditure. The stated purpose being to promote investment in the North Sea. Expenditure, which currently qualifies for a 25 per cent writing-down allowance under the plant and machinery and mineral extraction capital allowance codes, will receive a 100 per cent first year allowance. Long life assets, which currently receive a 6 per cent writing down allowance, will be eligible for a 24 per cent first allowance.
