UK tax regime continues to provide stability for shipping and offshore maritime

International accountant and shipping consultant Moore Stephens has outlined a number of unexpected changes introduced by the UK Budget 2018 which could have implications for the shipping and offshore maritime industries. But it stresses that these are relatively minor alterations which will have a limited impact on what continues to be a stable tax regime for the maritime sector.

The Annual Investment Allowance (AIA) will increase from £200,000 to £1m per annum for all qualifying investments in plant and machinery made between 1 January 2019 and 31 December 2020. This means that it will be important to either delay or bring forward any large expenditure on plant and machinery accordingly. However, there will be a reduction in the rate of writing-down allowances for special-rate pool assets from 8% to 6% per annum on a reducing balance basis.

A new 2% capital allowance will be available in respect of the construction costs of new commercial non-residential structures and buildings, including land alteration and improvement costs. Very broadly, the building must be used for a commercial purpose. This will apply where the contract is entered into on or after 29 October 2018.

There will be a restriction on the use of capital losses for companies. From 1 April 2020, the proportion of annual capital gains that can be relieved by brought-forward capital losses will be restricted to 50%. However, companies will have unrestricted use of up to £5m capital or income losses each year, so this rule is likely to be of limited application.

The government will consult on introducing a new targeted relief for the cost of goodwill (the amount paid for a business that exceeds the fair value of its individual assets and liabilities) in the acquisition of a business with eligible intellectual property from April 2019.

New rules apply to off-payroll working in the private sector, where an individual who is effectively an employee is actually employed by a private company. In this case, responsibility for operating the off-payroll working rules will apply to the organisation or other third party engaging the worker. This change will apply from April 2020.

There are no changes to the corporation tax rate, which will fall to 17% in April 2020. But there are some changes to Entrepreneurs’ Relief (ER). For example, from 6 April 2019, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months. There are also changes to the definition of ‘personal company’.

The government is to consult on some changes to the principle private residence relief from capital gains tax for owner-occupiers, including a reduction in the final period exemption from 18 months to 9 months. These rules will apply from April 2020.

Moore Stephens tax partner Sue Bill says, “There were no big surprises for the maritime sector in the UK Budget 2018, with the result that the UK tax regime continues to provide certainty and stability for the shipping and offshore maritime sectors.”


Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport

For more information:
Sue Bill
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
sue.bill@moorestephens.com

Moore Stephens says UK Autumn Statement is light on content for offshore maritime sector

International accountant and shipping consultant Moore Stephens says the UK Chancellor’s Autumn Statement 2015 is light on content for the offshore maritime sector, other than an unkind reference to falling oil prices. But it has highlighted a number of issues which may be of interest to the offshore maritime industry.

 

Sue Bill, Moore Stephens tax partner, says, “The government is to invest £1.3 billion to transform

HMRC into ‘one of the most digitally advanced tax administrations’ in the world. Most businesses

and self-employed individuals will be required to keep track of their tax affairs digitally and to

update HMRC at least quarterly via their digital tax account. The government will consult on the

details in 2016. 

 

“As part of the government’s drive to encourage voluntary compliance with the tax rules, it will

legislate to introduce a new requirement that large businesses publish their tax strategies as they

relate to or affect UK taxation, as well as a special measures regime to tackle businesses that

persistently engage in aggressive tax planning and a framework for co-operative compliance. 

 

“The government has introduced legislation in order to counter two specific tax avoidance schemes

involving capital allowances and leasing, which involve companies artificially lowering the

disposal value of plant and machinery for capital allowances purposes.  It is also introducing a new

penalty of 60% of tax due in all cases successfully tackled by the general anti-abuse rule.  In

addition, there is a new criminal offence for corporates failing to prevent tax evasion by their

agents. 

 

“In other measures, the government is to consult on the rules concerning distribution by companies and will introduce further anti-avoidance in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage.   

 

“Finally, Chancellor George Osborne made an unkind reference to the reduction in oil prices, pointing out that, if Scotland had voted for independence, it would have had its own Spending Review this Autumn and that, with world oil prices falling and revenues from the North Sea being forecast by the OBR to be down 94%, there would have been catastrophic cuts to Scottish public services.  He went on to say that, thankfully, Scotland remains a strong part of a stronger United Kingdom and that it would be given the resources to invest in its long-term future.” 

 

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 103 countries, employing 26,290 people and generating revenues in 2014 of $2.7 billion.      

           

For more information:                                                                        

Sue Bill                                                                                    

Moore Stephens LLP                                                                 

Tel: +44 (0)20 7334 9191                                                           

sue.bill@moorestephens.com        

Moore Stephens welcomes good news for oil & gas sector in UK Budget

International accountant and shipping adviser Moore Stephens has welcomed further specific assistance to the offshore oil and gas sector contained in the UK Budget 2015.

Moore Stephens tax partner Sue Bill says: “The measures announced in the UK Budget 2015, following those already introduced in the Autumn 2014 Statement, are good news for the offshore oil & gas sector operating in the UK or UK Continental Shelf.

“In its Autumn 2014 Statement, the government confirmed that it would introduce an immediate 2 percent reduction in the rate of the Supplementary Charge, from 32% to 30%, with effect from 1 January 2015. This will now be further reduced to 20%.

“A new Investment Allowance has been announced to stimulate investment at all stages of the industry life- cycle, simplifying the existing system of offshore field allowances, and providing investors with greater certainty. The government also announced that it will reduce Petroleum Revenue Tax from 50% to 35%, and will provide £20m of funding for a programme of seismic surveys on the UK Continental Shelf.

“The Budget also announced that the notification requirement under draft legislation in the Finance Bill 2015 aimed at minimising aggressive tax planning by multinational enterprises is to be narrowed. This is welcome news. There are, in addition, some changes to the detailed rules. The Budget also included an announcement that there will be amendments to the rules for companies subject to the oil and gas regime.”

As announced in the Autumn Statement, the government will extend the ring-fence expenditure supplement from six to ten accounting periods for all ring-fence oil and gas losses and qualifying pre-commencement expenditure incurred on or before 5 December 2013. An allowance was also introduced in the Autumn Statement to support the development of high-pressure, high-temperature projects. From 3 December 2014, an amount of profits equal to 62.5% of the qualifying capital expenditure a company incurs will be exempt from the Supplementary Charge.

The Budget also introduced changes to legislation announced last year which is of interest to the shipping and offshore maritime sector. The Finance Bill 2015 contains a new exemption from withholding tax on interest on qualifying private placements (a type of unlisted debt) to help the provision of new finance for businesses and infrastructure projects, which may mean that it is easier for companies to raise finance without incurring withholding tax liabilities of up to 20% on interest payments, or dealing with the administration involved in claiming treaty relief. Following consultation, it appears that the requirement that the security must have a minimum term of three years will now be removed.

Changes will also be made to the exemption from UK capital gains tax for tangible moveable chattels which are wasting assets and which have never qualified for capital allowances. In future, the exemption will not apply if the asset has not been used in the owner’s business. This could mean that the exemption is no longer available where a company sells a vessel on delivery without using it for trading purposes.

Sue Bill concludes: “The measures just announced, together with those unveiled last year, underline the extent to which the UK government understands the strategic importance of the offshore oil and gas sector to the UK economy. They are good news for the offshore maritime sector, although it remains to be seen whether, in the light of the recent dramatic fall in oil prices, they will be sufficient to provide the industry with the boost it needs at a difficult time.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 103 countries, employing 26,290 people and generating revenues in 2014 of $2.6 billion.

www.moorestephens.co.uk

For more information:
Sue Bill
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
sue.bill@moorestephens.com

Moore Stephens says offshore maritime sector must watch costs and risk exposure

International accountant and shipping adviser Moore Stephens says companies in the offshore maritime sector need to keep a close watch on costs and manage their exposure to risk in the wake of the dramatic fall in oil prices.

Cassie Forman, a director with the Moore Stephens Shipping & Offshore Maritime group, says: “It is remarkable how quickly the dramatic fall in oil prices has fed through to increasing levels of financial stress in the oil and gas services industry, where the sudden drop to around $50 a barrel is triggering cost-cutting across much of the sector. Oil and gas majors are already cutting costs, and several have recently announced cuts to investment in a number of major projects. Smaller players are also reconsidering their capital deployment.

“There was a significant increase in the number of insolvencies of UK oil and gas services companies last year. Although this increase is from a relatively low base, it is significant because insolvencies in the sector have been rare over the last five years.”

Referring to the recent bankruptcy of market-leading bunker supplier OW Bunker, Forman says: “This really set alarm bells ringing in the offshore maritime and shipping industries. Although the underlying reasons for the failure are still being analysed, the fall in oil prices is certain to have played a significant part.
Meanwhile, references to major risk management and fraud losses, and to unrecoverable credit, have been common throughout all reports to date involving the company’s collapse.

“Any industry which suffers what is effectively a 50 percent reduction in income over a three-month period is going to suffer. But any sector where the revenue is predicated on the price of oil, such as the offshore maritime industry, is particularly susceptible because of its exposure to counter-party risk and potential credit line difficulties.

“With oil prices now at their lowest level for five years or more, the offshore maritime sector needs to look at costs in light of its current reduced revenue stream. This is not a time for speculative or non-essential spending. Rather, it is a time for strategic financial planning with experienced advisers who understand the risks peculiar to the industry.

“The offshore maritime sector also needs to make sure that it has proper contingency planning in place, and effective risk management procedures embedded into the everyday activities of the company. Sound corporate governance and a proper management structure and technical support systems are central to the ability to identify, control and ultimately mitigate risk.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens’ unique ship operating costs benchmarking tool, OpCost, now includes vessel data and future operating costs forecasting data on offshore support vessels, which could be invaluable for budget planning and transfer pricing studies. www.moorestephens.co.uk

Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 103 countries, employing 26,290 people and generating revenues in 2014 of $2.7 billion.

For more information:
Cassie Forman
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
cassie.forman@moorestephens.com

Moore Stephens says offshore maritime sector could be hit by new UK tax charge

International accountant and shipping adviser Moore Stephens says companies in the offshore maritime sector could be among those hit by a 25 percent Diverted Profits Tax (DPT) charge under draft UK legislation scheduled to enter force in April 2015.

Under the draft legislation published by the UK government in December 2014, the new DPT could potentially apply to many UK companies transacting with overseas connected parties. Moore Stephens tax partner Sue Bill says, “The legislation as currently drafted is very wide-ranging and can apply wherever a UK company has entered into arrangements with connected parties involving enterprises or transactions with ‘insufficient economic substance’. For example, this could apply where a UK company leases equipment from an overseas-connected company located in a low-tax jurisdiction, where the lessor’s staff do not carry on any significant activities and where it is reasonable to assume that the transaction or transactions were defined to secure a reduction in the UK company’s corporation tax liability.

“Companies caught by the rules will be subject to a 25 percent tax charge. This will not usually apply to tonnage tax companies, because any transactions with related parties are unlikely to reduce the company’s tax liability as this is based on the net tonnage of vessels owned or chartered in to the company. However, the new rules could potentially affect many other companies, including those operating in the offshore sector.

“Her Majesty’s Revenue & Customs has said that further consideration needs to be given in certain circumstances to the interaction of these new rules with the cap on bareboat charter payments made to an associate by a company working on the UK Continental Shelf (UKCS). It is therefore not yet clear whether these rules will be modified for companies working on the UKCS.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


For more information:
Sue Bill
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
sue.bill@moorestephens.com

Scottish independence predicted to have negative impact on shipping and offshore maritime sector

A vote for independence from the UK would have a negative effect on the Scottish shipping and offshore maritime sector, according to a survey by leading international accountant and shipping adviser Moore Stephens.

The survey elicited the views of leading members of the international shipping community on the predicted impact on Scotland’s shipping and offshore maritime industry of the country voting for independence on 18 September 2014. More than half the number of respondents to the survey felt that a vote for independence would have a negative effect. Two-thirds of respondents thought that a move away from the Pound Sterling by an independent Scotland would have a negative effect on offshore continental shelf and related onshore activities. Meanwhile, more than 70% admitted they had no plan of action for a potential ‘Yes’ vote.

Overall, 55% of respondents felt that independence from the UK would have a negative effect on the Scottish shipping and offshore maritime sector. 45% of all respondents had an existing business relationship with Scotland, and it was they who were most pessimistic about a Yes vote for independence, with 69% believing it would have a negative impact. By comparison, 57 % of those respondents with no existing business relationships with Scotland thought that a Yes vote would have a positive effect. Meanwhile, 74% of respondents admitted they did not have an action plan for a potential Yes vote.

A number of respondents were extremely outspoken in their arguments against independence. One maintained, “We have no confidence that a Scottish government would properly take account of shipping’s needs,” while another emphasised, “Scotland does not have the necessary infrastructure to replace the UK Merchant Marine. We will change the home port of our vessels from Aberdeen to London.” Elsewhere it was noted, “This will be a total disaster that we are not prepared to handle,” and, “The concept of an independent Scotland is somewhere between madness and childishness.” Another respondent warned, “Unless there are practical implementation plans to include the shipping and oil and gas industries, independence will be disastrous for Scotland.”

A number of respondents feared that an independent Scotland would become isolated in the wider international community. One said, “The world is full of examples of the crippling effect on the whole economy and culture of a newly independent country. It may take decades to recover the ground which is lost, totally unnecessarily, by effectively trying to reinvent the wheel.” Another feared, “Protectionist legislation will be implemented, resulting in more isolationist policies which will severely impact on the Scottish economy. The Scottish people must live with the consequences of independence. All support must be withdrawn and cross-border trade should be restricted.”

Another still emphasised, “Scotland is too small to make any impact as an independent nation and would be generally ignored as a player in the maritime industry without the backing of a larger UK. Confidence would fall dramatically.” In the same vein, it was noted, “The isolation resulting from independence will impact negatively on the Scottish economy generally, and on the efficiency and cost of maintaining a shipping administration.”

A number of respondents were of the view that Scotland should leave well enough alone. “Shipping is a conservative industry,” said one, “and Scottish independence introduces unknown risks and change for change’s sake.”

The survey revealed misgivings about the policies likely to be followed by an independent Scottish government. “Confidence in government will be affected massively,” said one. “The SNP is perceived as a ‘one-issue’ party, and it is unclear how it plans to administer an independent country.” Another noted, “The Scottish government does not have anywhere near a high enough calibre of staff to run an independent nation,” while another still remarked, “Scotland will become like Bulgaria in the old days – a socialist administration trying to guide industry, but without a clue how to create wealth,” a view shared by the respondent who predicted that the result of a vote for independence would be “a very socialist agenda at odds with a very capitalist industry.”

“People will not take an independent Scotland seriously,” according to one respondent. “It will be self-imploding and will lack serious funding. There is no understanding of, or support for, non-subsidised shipping in Scotland. They simply don’t want to engage.” Another said, “There has been little or no debate on maritime issues. Policy needs to be developed and debated as part of a wider independence strategy, and we have no confidence that such will be the case.” Elsewhere it was noted, “We do not see independence as a viable option. The current semi-autonomous set-up already addresses Scotland’s concerns for self-governance, while taking significant advantage of the union. It would be amazing if the people decided to get rid of that, not to mention the flawed nature of the referendum, which does not take into account Scots resident in the UK but not presently residing in Scotland.”

Other respondents, meanwhile, saw positives for the maritime sector in a vote for independence. One said, “The shipping sector will develop more quickly if Scotland becomes independent,” while others believed that independence would “increase opportunities” and lead to “high confidence levels” in the maritime sector. Other comments emphasised the need for an independent Scotland to be perceived as “customer-friendly” and to “cut away the ballast and stay tuned to the needs of the shipping sector.”

“Scottish independence would concentrate the mind on how better to support the offshore oil and gas sector,” emphasised one respondent, “and help re-entry into the commercial and naval shipbuilding markets.” Another said, “A free Scotland is guaranteed to prosper and will have a significant impact on the European economy,” while another still observed, “Scotland has the necessary resources, the skilled people and the experience. And we look forward to continuing to trade with it and developing our business there in the likely event of independence.”

On a scale of 1 (low) to 10 (high), the likelihood of respondents, on average, making a major investment or significant development in and/or involving Scotland over the next 12 months was 3.7.Just over 37% of respondents rated the likelihood of making such an investment at 1. Almost 75% of respondents rated their likelihood of investing in Scotland over the coming year at 5 out of 10 or lower, although almost 8% returned the maximum rating of 10. One respondent said, “The entire industry investment is currently on hold pending the independence vote. Nobody is likely to take a gamble on an unknown factor.” Other comments referred to the need for investment from capital markets and other external sources.

Almost two- thirds (65%) of respondents felt that there would be a negative impact on the offshore continental shelf and related onshore activities if an independent Scotland moved away from the Pound Sterling. One respondent said that having a currency weaker than Sterling would have a negative effect on the willingness or ability of Scottish companies to invest in products and services from counties with stronger currencies. Another noted, however, that this would not be an issue if Scotland elected, and was allowed, to adopt the euro as its currency.

On a scale of 1 (low) to 10 (high), the average confidence level expressed by respondents in Scotland’s ability to provide security for Scottish-flagged ships was 5.1. 18% of respondents assessed their confidence in Scotland’s ability to provide such security at just 1, while 59% rated their confidence in this regard at 5 or lower. However, 12% rated their confidence levels at a maximum 10. “Scotland could be an alternative European flag,” said one respondent, while another observed, “As a flag state, Scotland would have to work hard to gain credibility and to develop the necessary working infrastructure.” Others, though, were less optimistic. “Scotland does not have the maritime voice or manpower to cope as a certificated authority or at IMO,” said one, while another predicted, “Ships would move away from the Scottish flag, and offshore business would become increasingly incorporated with European administrations.” Emphasising that Scotland has to offer cost savings and a reduction in bureaucracy to attract business, another respondent insisted, “Everyone is looking for customer-friendly places and flags to register their vessels.”

Respondents were asked to identify the top three factors which were most likely to influence the resilience of the Scottish shipping and offshore maritime industry over the next twelve months. Overall, currency emerged with the highest weighted percentage (25 %) across the three factors, followed closely by the tax system (24%), with the oil and gas industry in third place (16%). The remaining four factors were entry to Europe (14%), tonnage tax eligibility conditions in the UK and Scotland (11%), border control (6%) and security policy (4%).

One respondent warned, “An independent Scotland would need to offer tax advantages and concessions to keep owners in the country,” while another predicted, “If Scotland votes for independence, the oil majors will move south of the border, where taxes and capital would be much safer.” But another still argued, “If Scotland can join the dots linking the likes of taxation, finance, corporate structures and tonnage tax, then the independent nation can only benefit.”

Elsewhere it was noted, “Independence would lead to a further decline in UK Continental Shelf Exploration & Production due to the lack of a mid-to-long-term strategy and tax regime security,” and, “Scotland’s shipping and offshore maritime sector could ride out the industry peaks and troughs more smoothly with a larger tax-raising population.” One respondent, meanwhile, feared that post-independence taxation would “harm utilisation of oil resources.”

On the subject of tonnage tax, one respondent argued, “An independent Scotland could learn from the weaknesses in tonnage tax south of the border and use that to stimulate growth both from an ownership point of view and in terms of increasing the number of ships under management from Glasgow.”

Respondents were asked to rate, on a scale of 1 (low) to 10 (high), their confidence in the future of the shipping and offshore maritime markets in Scotland. The average confidence level expressed by respondents was 6.1. Almost two-thirds (63%) rated their confidence at 6 or higher, with 17% recording a rating of 8, while ratings of 6 and 7 each attracted 15% of the vote. Over ten per cent of respondents rated their confidence in this regard at 10.

Cassie Forman, Moore Stephens Director, Shipping and Offshore Maritime, says, “The survey revealed a high level of interest in the likely impact of Scottish independence on the shipping and offshore maritime sector. Unsurprisingly, issues such as currency, the taxation system, tonnage tax and the ability of Scotland to administer an efficient and cost-effective shipping administration dominated the comments from respondents.

“The survey was very international in its scope. This is important because, irrespective of the outcome of the vote on 18 September, Scotland will be looking to strengthen its position in what is arguably the world’s most international industry. It is worth bearing in mind the observation from one respondent that, ‘People in Latin America do not differentiate between Scotland and the rest of the UK.’ We shall soon know whether the rest of us will need to do so.”

The Moore Stephens Scottish independence survey includes responses from key players worldwide in the shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group. It drew responses from 282 ship owners, managers, charterers, operators, brokers, professional advisers and others in Europe, Asia, the Americas, Africa and elsewhere, engaged in the shipping, offshore support, oil and gas, and other related sectors. 26% of the responses were from ship managers, followed by owners (22%) and professional advisers (21%). Some 66% of the responses were from Europe, 15% were from Asia and 12% from the Americas. Within Europe, just under 10% were from Scotland itself, while the rest of the UK accounted for 16%. Participants in mainstream shipping sectors such as the bulker, tanker, container ship and gas trades accounted for just under two-thirds of the responses, while over 12% were engaged in the offshore support vessel sector. Editors can apply for a copy of the survey by emailing chris@merlinco.com


Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


More information:
cassie.forman@moorestephens.com