Budget Notes


Who is likely to be affected?

1. Companies that produce oil and gas in the UK and on the UK Continental Shelf (UKCS) and have relieved expenses of management against 'ring fence' profits.

General description of the measure

2. Legislation will be included in Finance Bill 2008 to close a loophole in the rules governing the taxation of oil and gas production in the UK / UKCS. It does so by disallowing expenses of managing an investment business as a deduction against a company's ring fence oil and gas profits.

Operative date

3. The measure will have effect on or after 12 March 2008.

Current law and proposed revisions

4. Current tax law operates a ring fence around the profits of a company's oil and gas production in the UK and on the UKCS. The profits are set apart from any other activities the company undertakes and losses arising outside the ring fence cannot be used to reduce ring fence profits.

5. In 2004, as part of the Corporation Tax Reform programme, the rules regarding expenses of managing an investment business were relaxed to allow such expenses to be relievable against a company's total profits from all its activities.

6. Some oil and gas companies have arranged their affairs in order to offset expenses of managing an investment business against their ring fence profits. These arrangements seek to undermine the integrity of the ring fence rules.

7. With effect on and after 12 March 2008, no deduction for expenses of management of investment business will be allowed against ring fence profits.

8. Draft legislation and explanatory notes have been published today on the HM Revenue & Customs website.

Further advice

9. If you have any questions about this change, please contact Mike Crabtree on 020 7438 6576 (email: mike.crabtree@hmrc.gsi.gov.uk) or Paul Philip on 020 7438 6993 (email: paul.philip@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk