Appendix 2: 2005 Pre-Budget Report and 2006 Budget

Introduction

The Pre-Budget Report in December 2005 announced with effect from 1 January 2006:-

• an increase in the rate of SCT from 10% to 20%;
• the option to defer 100% First Year Allowance claims for expenditure incurred in the year ended 31 December 2005, to the first accounting period commencing on or after 1 January 2006. By doing so, companies will offset capital expenditure against profits charged at a higher rate of SCT;
• the introduction of the Ring Fence Exploration Supplement (RFES), which extends and replaces the Exploration Expenditure Supplement (EES), is intended to act as an investment incentive;

The 2006 Budget introduced new rules to crude oil pricing for taxation purposes, which will apply from 1 July 2006. The RFES and the new rules for oil valuation are explained below.