Minutes to read 5
With 154,000 jobs related to offshore energy and spending in the UK’s offshore energy sector potentially totalling £450bn by 2040, many oil and gas contractors were waiting to hear any changes that were being made by the Chancellor in Labour’s first Autumn Budget last week.
As Rachel Reeves confirmed changes to the Energy Profits Levy, contractors looked to her to ensure the Government can protect the UK oil and gas industry, jobs and support domestic energy security.
She confirmed that whilst the Government will increase and extend the energy profits levy on oil and gas production to a headline rate of 78%, and remove the associated investment allowance, the 100% first-year capital allowance and the decarbonisation allowance will be retained.
She also later confirmed that the Energy Profits Levy will fall away in March 2030 unless the Energy Security Investment Mechanism is triggered.
In the UK, we import around 40% of our energy, with energy production being at its lowest ever. Moving to net zero will cost the economy more than £1 trillion, and currently the UK gets 75% of its total energy from oil and gas.
This powers over 24 million homes that rely on gas boilers to heat their houses, and a further 1.5 million who rely on heating oil. On top of this, over 30% of UK electricity is supplied by gas power stations.
And although the Autumn Budget also included maintenance of the current existing incentives for EVs in company car tax from 2028, as well as increasing the differential between fully electric and other vehicles in the first rates of Vehicle Excise Duty beginning in April 2025, there are currently still 38 million UK vehicles running on petrol or diesel.
What is the Energy Profits Levy?
The Energy Profits Levy (EPL) is a temporary windfall tax introduced by the Government in 2022. The tax is on the profits of oil and gas companies operating in the North Sea. The levy was designed to address the substantial profits these companies were making as a result of the increase in global oil and gas prices, brought on by both the covid-19 pandemic and the Russia-Ukraine conflict.
The EPL included a higher tax rate that was initially a 25% surcharge on top of the existing tax, but this rate was later increased to 35%, bringing the total tax rate for these companies to 75%. Although only designed as a temporary measure until 2025, this has now been extended to 2030 and increased to the headline rate of 78%.
The incentive behind it to encourage continued investment in the UK’s energy sector, included a significant investment relief. Companies could receive tax relief for investing in new oil and gas extraction projects in the UK, allowing them to offset some of their tax burden by reinvesting profits back into the sector.
This in turn worked towards the primary objective in generating revenue to help the Government support households facing high energy bills. Funds raised by the levy are intended to help finance Government assistance programs to alleviate the cost-of-living crisis, especially given rising energy costs.
The Chancellor has recognised the role of the oil and gas sector to support high quality jobs and strengthen the UK’s energy security, however many are criticising the increase in tax despite the energy costs coming down.
Looking at the industry as a whole, some are calling for more of a partnership between the industry and the Government, to protect the North Sea as a national economic asset and work with oil & gas companies to transition skilled workers from the oil, gas, wind and hydrogen industry to carbon capture projects.
Finances for Offshore Workers
Financial management and tax compliance can be complex for UK-based offshore contractors, as their unique employment circumstances require specialised accounting support. As a contractor working offshore, whether on oil rigs, wind farms, or vessels in international waters, you have unique tax obligations and entitlements.
Offshore workers often face regulations that impact their tax liabilities, pension contributions, and financial planning. Working in multiple jurisdictions or international waters may bring exposure to different tax laws, and varying contract terms add further complexity to expense claims and deductions.
At Gorilla Accounting, as part of our fixed-fee accountancy packages, we can help you with:
● Compliance with UK tax laws as they apply to offshore earnings.
● Optimisation of available tax reliefs.
● Peace of mind that your finances are in expert hands, enabling you to focus on your work.
Understanding Tax Residency Rules for Offshore Workers
One of the most pressing considerations for offshore workers is residency status. UK tax law defines residency based on time spent in the UK within a tax year, which can affect tax obligations significantly.
As a UK tax resident, your worldwide income, including offshore earnings, may be subject to UK taxes. This is assessed using the Statutory Residence Test.
For offshore workers, determining residency status requires careful tracking of days and clear documentation. Working with an accountant who understands these rules helps avoid unintended residency status or underreporting income.
National Insurance Contributions for Offshore Workers
National Insurance Contributions (NICs) can be a tricky area for offshore workers, especially if you’re a contractor, with the IR35 rules, but paying tax and National Insurance is mandatory for UK residents working overseas under certain conditions. For offshore contractors, the NIC requirements may vary depending on:
● The length and nature of the contract.
● Whether the employer has a UK presence.
● Agreements between the UK and the host country (social security agreements).
A specialist accountant can assist you in understanding whether NICs are required for your specific offshore employment situation, helping you avoid unnecessary payments or potential gaps in your NIC record that could affect future benefits, including the state pension.
Offshore Workers, Expense Management and Financial Planning
Another critical area for offshore workers is managing expenses. Certain expenses are allowable for tax relief if they are incurred wholly, exclusively, and necessarily in the course of your work. Examples include travel expenses, accommodation, and meals during qualifying periods.
For offshore contractors, claiming expenses correctly can be challenging due to fluctuating contracts, changing work locations, and shifting exchange rates. A specialist accountant can help you with:
● Accurate tracking and categorisation of allowable expenses.
● Claiming relief on foreign exchange fees, if applicable.
● Compliance with HMRC’s expense guidelines for offshore workers.
● Financial planning, pension contributions, savings and investments.
● Self-Assessment Tax Returns.
● Bookkeeping using FreeAgent, included in our fixed-fee accounting services.
Why Choose Gorilla Accounting?
Hiring a general accountant may not be sufficient for offshore workers, as these professionals often lack specific knowledge of offshore tax deductions, residency rules, and foreign tax credits.
At Gorilla Accounting, we offer tailored, contractor-specific advice on allowable expenses, reducing tax burdens and residency requirements, as well as giving you the peace of mind that your finances are being managed by your own dedicated, expert accountant. We understand the nuances of offshore work and the best practices for maximising your income and compliance.
While offshore work offers lucrative opportunities, effective financial management is essential to make the most of your earnings. Partnering with a specialised accounting firm ensures that your unique needs are met, from maintaining compliance with UK tax laws to claiming all available reliefs.
We are experts in contractor accounting, dedicated to helping offshore workers achieve financial success through proactive, tailored accounting solutions. If you’re interested in getting to know more about how we work with you, you can join Gorilla today using our easy Join Us form. You can get an Instant Quote here, and we can even help you switch if you’re already using an accountant but you’re not happy with your service.
