Sue Bill, business tax partner at Moore Stephens has written on the taxation issues being faced by offshore marine companies in the North Sea.
She noted that the UK tonnage tax rules for ships operating in the North Sea were complex as they were designed to preserve the tax revenues arising from the natural resources from the UK Continental Shelf.
Depending on the type of vessel being operated, the possible situations were:
· it may be within tonnage tax wherever it operates
· it may wholly excluded
· it may be excluded from tonnage tax whilst operating in the North Sea.
Where an offshore vessel is in tonnage tax, HMRC considers that it is necessary to allocate profits between land-based activities (non-tonnage tax) and services provided at sea (in tonnage tax).
In addition, noted Ms Bill, the rules relating to capital allowances and capital gains were also complex. While R&D was critical, it could be costly, with payback taking months, if not years. The UK has some of the most effective reliefs available for this type of expenditure in the form of R&D tax credits, which are a very generous and important tax relief. R&D tax credits are unusual as they provide the taxpayer with the opportunity of claiming more in tax relief from HMRC than they have paid in tax. The relief can be of relevance even for companies that do not pay corporation tax as they are loss making.
Ms Bill said that this relief “should be of particular interest for companies supporting the offshore maritime sector”. It was not only for companies that were inventing something brand new. It could be claimed by companies who were improving existing products or internal processes.
“Any company that is involved in technological or scientific problem solving is likely to also be eligible for the relief. This can include seismic research, software developers, production, engineering, construction or even demolition companies”, said Ms Bill.
From April 1st 2016, the Scottish Parliament has been able to set a Scottish rate of income tax (SRIT) to be paid by Scottish resident taxpayers on certain types of income. For 2016/17, the SRIT was 10p, the same as the UK equivalent rate, so that Scottish taxpayers paid the same tax as other UK taxpayers. However, for 2017/18, the threshold for paying the 40p income tax rate will start at £43,000 instead of £45,000 as elsewhere in the UK (this threshold broadly applies to income other than savings and dividend income). Further changes were made this month.
Ms Bill said that a Scottish resident was an individual who was UK resident and had their sole or main residence in Scotland or, if no main residence can be identified, has spent more days in Scotland compared to elsewhere in the UK in the tax year.
The HMRC guidance on the Scottish residence test sets out two examples of how this might affect workers on an oil rig in Scottish waters. If the oil worker has their family home elsewhere in the UK where they spend all their non-working time, their main residence will be elsewhere in the UK and they will not be a Scottish taxpayer.
However, if a worker on a rig spends their time when not on the rig in work-related accommodation or visiting friends or on holiday, depending on the circumstances, they may not be regarded as having a main residence and their taxpayer status will be decided by a day count.
Ms Bill noted that what this meant was that their residence status could change from year to year.
The finance and insurance sector accounts for 22.4% of additional rate taxpayers in the UK but only for 11.5% in Scotland.
Ms Bill said that the taxation changes in Scotland meant there was a significant administrative burden for individuals and companies, uncertainty and unfairness.