Skip Navigation LinksMy Argus / News / News Story

Printer friendly

UK North Sea cost the government £312mn in FY2016

04 Jul 2017 13:17 (+01:00 GMT)
UK North Sea cost the government £312mn in FY2016

London, 4 July (Argus) — The North Sea oil and gas industry was a financial burden on the UK government in the latest tax year, as total revenues turned negative for the first time on record, according to the latest data from government tax department HMRC.

Total tax revenues from the industry fell to a negative balance of £312mn ($403mn) in the 2016-17 financial year that ended 5 April, from a positive contribution of £151mn in the previous financial year, as the value of tax rebates exceeded what was received by HMRC in corporation tax. As recently as the 2011-12 financial year, revenue from the industry was as high as £10.9bn.

HMRC received just £338mn in corporation tax in 2016-17, down from £713mn a year earlier. But the balance on petroleum revenue tax fell further to a negative £650mn, from a negative £562mnn during the 2015-16 period, causing the balance of total revenues from the industry to turn negative for the first time since records began in 1968-69.

The balance on petroleum revenue tax turned negative for the first time last year, after the government moved the tax rate from 50pc to zero, effective from January 2016. But higher revenue received from corporation tax ensured overall revenues from the industry remained positive.

Petroleum tax revenues are a deductible expense in computing profits chargeable to ring fence corporation tax and supplementary charge, according to HMRC. This means the negative figure is made possible by the fact North Sea firms are able to carry back losses indefinitely to earlier periods, reducing liabilities and leading to tax repayments

The government attributed the figures to "continued low oil prices and high levels of expenditure, the recent reduction in the rates of petroleum revenue tax and supplementary charge, and to a lesser extent the utilisation of the basin wide Investment Allowance (introduced in 2015)".

This trend is likely to continue in the coming years.

UK regulator OGA recently pegged the full cost of decommissioning the UK North Sea at between £44.5bn and £82.7bn, though it set a target to reduce this by 35pc to around £39bn. But tax relief on the clean-up costs means that a sizeable portion of this will be picked up by the UK taxpayer.