RegulationCorporate GovernanceShale gas explorers boosted by tax incentive

Shale gas explorers boosted by tax incentive

Exploration businesses to pay less tax on their profits because capital expenditure relief will be significantly increased

EXPLORATION BUSINESSES will be incentivised through tax reliefs of up to 75% according to the chancellor’s latest Autumn Statement.

The allowance will cut tax on early profits by as much as 75% of capital expenditure. Currently, a supplementary charge on exploration companies’ ring-fenced profits are taxed at 30%.

However, George Osborne has announced that an allowance will remove an amount equal to 75% of capital expenditure incurred by a company in relation to an onshore site, from its adjusted ring fenced profits.

Essentially a company will pay less tax on their profits because capital expenditure tax relief will be significantly increased.

In the Autumn Statement, he said: “The economic benefits that shale gas could bring – thousands of jobs, billions of pounds of business investment, and lower energy bills – would extend beyond oil and gas to other manufacturing sectors, which is why major industrial employers have publicly supported its development”

The report added that an independent analysis highlighted that this allowance makes the UK tax regime for shale gas the most competitive in Europe.

Evidence collected from operators also indicates the new relief will make the effective tax rate for shale gas projects lower than in the US – making the UK an attractive, competitive opportunity for global operators.

The relief is expected to save companies approximately £45m over the next five years.

Rhian Kelly, CBI director for business environment policy, said: “The Government has signalled that gas should play a big part in moving to a low-carbon economy, so it makes sense to explore new gas sources here, rather than increasingly depend on sources from elsewhere in the world.

“Provided safety standards are observed, shale gas could unlock significant new infrastructure investments, help meet our carbon reduction goals and create many new jobs around the UK.”

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