We look at the environment and energy provisions in the Finance Act 2015 (FA 2015).
What provisions of Finance Act 2015 relate to Oil and Gas?
On 26 March on Second Reading in the House of Lords, Lord Newby announced FA 2015 as including “a comprehensive package to support the oil and gas sector and secure long-term investment in the UK Continental Shelf.”
In terms of Oil and Gas measures, the Autumn Statement 2014 followed a Treasury review of the oil and gas fiscal regime, the results of which were announced in “Driving investment: a plan to reform the oil and gas fiscal regime”. Further context was (and continues to be) provided by: significantly reduced wholesale prices for oil and gas; waning offshore reserves; an as-yet-unborn onshore shale market; and threats by industry to concentrate investment outside the UK.
As Lord Newby put it, FA 2015 is intended to demonstrate that “Government understand the challenges facing the UK oil and gas industry as a result of the steep fall in oil and gas prices…”.
Are there any other important energy provisions?
In addition to important additional incentives to ameliorate the oil and gas tax burden, adjustments have been made:
- to increase the main rates of Climate Change Levy (CCL) with effect from 1 April 2016.
- to the CCL regime to provide support for UK manufacturing by mitigating effects of Carbon Price Support CCL rates on combined heat and power (CHP) generation.
What other provisions in FA 2015 relate to environmental taxes
The main “other” environmental tax provisions concern Landfill Tax (sections 64 and 65) and Air Passenger Duty Rates. A proposed provision concerning a fuel duty on Bio-ethanol, announced in the 2015 Budget, was deferred until the next Parliament.
Other important provisions concerning environmental matters – contributions to flood relief and coastal erosion risk management projects
With effect to contributions made on or after 1 January 2015, Section 35 and Schedule 5 introduce deductions from income and corporation tax for business contributions to partnership funding schemes for flood defence projects.
To qualify for relief (among other things):
- the project toward which a contribution is made must:
- be a flood or coastal erosion risk management project;
- have been the subject of an application to the Environment Agency (EA) OR by an English risk management authority for grant aid or the EA must have determined that the EA will carry out the project AND (in either event) the EA must have allocated funding;
- the contribution must have been made under an agreement between the person making the contribution and the EA or the applicant authority or between these persons and other persons.
FA 2015 gives effect to a variety of measures, some of which were: first announced in Budget 2014; re-announced, in more refined form in the 2014 Autumn Statement; consulted upon as draft legislation at the beginning of 2015; re-re-announced in Budget 2015; and finally enacted at break-neck speed before Parliament was dissolved. As such, the bigger measures were already familiar to many before the Bill was laid before Parliament.
All in all, from the perspective of environment and energy taxes it is a mixed bag:
- major incentives, born of determination to encourage the oil and gas industry to keep faith with North Sea and onshore opportunities in the face of dramatically changing external factors;
- a variety of small measures designed to do little more than keep pace with inflation and previous commitments, such as RPI based adjustments to Landfill Tax and Climate Change Levy; and
- eye-catching incentives to capture private finance (through offers of tax relief) to help pay for widespread, much needed flood defence and coast protection schemes in the face of cuts in national funding.
Read the full responses to each above point here.
This was first published on Lexis®PSL Planning in April 2015.