The UK Chancellor has today announced the introduction of the Energy Profits Levy, a windfall tax imposed in reaction to recent record high oil and gas prices. Here are the main details of the levy published so far:
- It is a 25% tax on the profits of companies from the production of oil and gas on the U.K. Continental Shelf. So it does not apply to the electricity generation sector, but the government is keeping its options open on how to deal with what it regards as extraordinary profits there.
- It is a temporary tax: it applies to profits arising on or after today’s date and will be abolished by 31 December 2025 at the latest, with it being phased out sooner if oil and gas prices return to historically more normal levels.
- It comes within an added investment incentive, with the result that a company saves 91 pence in UK tax (not just this levy) for every £1 it invests: a near doubling of the tax saving currently.
- It aims to raise approximately £5 billion over the next 12 months.
- Finance and decommissioning costs are not taken into account in determining a company’s profits for the purposes of the levy.
- It will be legislated for by a standalone Bill, to be introduced shortly.
We will remain up to speed on key developments with this levy, so please feel free to contact Caspar Fox or Emma McGrory for updates.