Tax, Payroll & Accountancy Services For The Oil & Gas Industry

When oil production in the North Sea started, many workers found themselves spending considerable amounts of time outside the 12-mile limit of the UK’s territorial waters and therefore, technically not subject to UK tax rules. The government appointed the UK’s part of the North Sea region as the UK Continental Shelf (UKCS), subject to standard tax regulations where the usual rules apply.

As a result, there are only three areas where contractors can potentially benefit from ‘tax breaks’ when working offshore:

1. “Contractors meeting the eligibility criteria for seafarers deductions pay little income tax and National Insurance Contributions (NICs).”
2. “Contractors working in the Norwegian part of the North Sea, or in other oil and gas provinces around the world, and who would normally fail the UK’s statutory residency test, may also pay little tax.”
3. “For contractors travelling widely or working on a rotational basis, it is possible to apply different tax treaties to reduce their tax bill to virtually zero, even after working in Norway, which has some of the toughest tax laws in the world.”

Expat contractors who are non-UK tax residents may pay minimal or no UK tax, depending on the double taxation treaties in place between the UK and the tax jurisdiction where the worker is a resident.

Not all double taxation treaties mention the UKCS. So, time spent on a production platform outside of the 12-mile territorial limit might enable expat contractors to retain their non-dom status.

There is an additional category, which is not limited to oil and gas contractors. This includes individuals using offshore tax schemes, who may benefit from lower rates of tax. Furthermore, some umbrella company contractors, whose solution providers pay them through an offshore payroll company, may receive some of the benefits of not having to pay employers’ NICs.

However, these are not exclusive to the UKCS or working offshore, and legislation is proposed to tackle schemes that use offshore payroll companies to avoid employers NICs.

Expenses for offshore contractors working with a limited company or under an umbrella company, are treated in the same way as their onshore counterparts. The greatest difference is that clients of oil and gas contractors frequently cover the cost of specialist training, equipment and transport to offshore locations.

The temporary workplace regulations are also a complicating factor. The offshore platform serves as the temporary place of work. Contractors can’t claim expenses if they work on the same rig for 24 months. To be eligible for expense claims, moving to a different offshore platform generally requires it to be more than 75 miles away from the original rig.

In all other respects, limited company oil and gas contractors can claim corporation tax relief for training, equipment, travel and certifications, such as medicals and offshore safety. Although, it’s important to note that clients often cover a significant portion of these costs.

An oil and gas contractor must satisfy a set of conditions to qualify for Seafarers Earnings Deductions (SED). The contractor must spend 183 days at sea or overseas for leisure within a 365-day qualifying period to meet SED criteria.

Deductions can only be claimed when a worker is onboard the vessel, and a visit to a foreign port is required. The vessel must also qualify and HMRC has established specific guidelines for vessel eligibility, excluding offshore platforms, drilling rigs, or floating production platforms.

Contractors seeking to qualify for seafarers deductions must keep detailed log books, with shipmasters and immigration stamps to back up their claims for HMRC to accept deductions.

Find out more over on our dedicated Seafarers page here.