Autumn Budget 2024

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Measure

Oil and Gas Fiscal Regime

The measure

The Chancellor set out several changes to the energy profits levy (“EPL”) that had previously been announced, including: 

  • an increase in the EPL rate from 35% to 38% for profits arising after 1 November 2024. This will bring the headline rate of tax for upstream oil and gas companies to 78%;
  • an extension to the period to 31 March 2030;
  • the removal of the investment allowance for EPL purposes, which was an additional 29% allowance generated by capital and certain operating expenditure;
  • preservation of the first year allowances and the cash benefit of the investment allowance for decarbonisation expenditure under the EPL regime. 

The energy security investment mechanism (“ESIM”) will also be kept in place.  

The government also announced a consultation to take place in early 2025 into how the upstream oil and gas regime responds to oil and gas prices shocks after EPL ends.   

It has also confirmed certain technical changes to the decommissioning regime to facilitate the change of use of oil and gas fields for the purposes of carbon capture use and storage (“CCUS”) projects.

 

Who will be affected?

Companies which are subject to the “ring fence” tax regime by virtue of undertaking oil and gas exploration and extraction activities in the UK. 

 

When will the measure come into effect?

The increase in the EPL rate and changes to the EPL investment allowances will take effect from 1 November 2024.

Our view

The increase to the EPL rate and removal of the investment allowance are in line with industry expectations, given the plans set out in the Labour manifesto and announcements over the summer.  

However, first year allowances for qualifying capital expenditure and the cash tax benefit of the decarbonisation allowance under the EPL regime have been retained.  

Industry will now be paying keen attention to the consultation announced that will take place in early 2025 into how the upstream oil and gas ring fence tax regime responds to oil and gas price shocks after the end of the EPL. 

The regular changes to the ring fence tax regime over the last two decades (including eight changes to tax rates in the last 10 years) have created uncertainty among investors. A regime that provides stability, is appropriate for a late life basin and supports the energy transition is key to helping the UK achieve its net zero objectives.