Upstream oil and gas taxation

The measure

The government has confirmed that the Energy Profits Levy (EPL) will remain in place until 31 March 2030 unless prices fall below both the oil and gas price thresholds set by the Energy Security Investment Mechanism (ESIM).  

It has also announced the key features of the permanent successor to the EPL, the Oil and Gas Price Mechanism (OGPM) which will apply once EPL ends (either from 1 April 2030 or when the ESIM is activated): 

• OGPM will be a revenue-based model, such that revenues above certain thresholds will be subject to additional to the new regime; 
• OGPM will apply at a rate of 35% on revenue to the extent those proceeds are above the set thresholds; 
• There will be separate OGPM thresholds for oil and gas (with natural gas liquids to be taxed under the oil regime). For financial year 2026/27 these will be $90 per barrel for oil and 90p per therm for gas; and 
• The thresholds will be adjusted annually in line with consumer price inflation. 

The government has also announced legislation to clarify that taxpayers cannot claim for refunds of EPL under a Decommissioning Relief Deed. EPL does not permit relief for decommissioning expenditure. 

Beyond tax measures, the government has also outlined measures to permit limited development of existing oil and gas projects which have links to existing infrastructure as well as the establishment of the North Sea Jobs Service to support workers seeking new opportunities in growing Industrial Strategy sectors, such as clean energy, defence and advanced manufacturing. 

Who will be affected?

Oil and gas companies subject to the ring fence corporation tax regime. 

When will the measure come into effect?

The government intends to legislate for the OGPM in the next Finance Bill (2026-27) and will commence engagement immediately after the Budget on the draft legislation and implementation; noting that it will continue to work with the sector to deliver the mechanism as effectively and efficiently as possible.