Measure
Today the government announced its intention to change several aspects of the Energy Profits Levy, one of the additional taxes which applies to companies with UK oil and gas extraction activities.
The Levy will apply at a rate of 35% (up from 25%) for profits earned from 1 January 2023;
The Levy will be extended by more than two years to 31 March 2028;
The premise that the Levy could end sooner than its sunset date (now 31 March 2028, previously 31 December 2025) if oil and gas prices were to return to historically more normal levels has been dropped.
Companies which are subject to the “ring fence” tax regime by virtue of undertaking oil and gas exploration and extraction activities in the UK.
The changes will take effect from 1 January 2023.
Today’s announcement drives the combined headline tax rate on UK oil and gas companies to 75%. This action, on top of the previous introduction of the Levy, risks diverting investment from the UK continental shelf to other countries, particularly given the relative maturity of the UK continental shelf as a producing basin.
The changes reflect a rebalancing of the government’s priorities in respect of maintaining energy security, low cost and the contribution of low-carbon technologies. It will not have escaped companies’ attention that these measures are proposed to operate until the close of the government’s scorecard horizon in 2028, calling into question whether these will indeed be “temporary” measures or are indicative of a longer-term high tax environment for those in the energy supply chain.