Overview

The Energy (Oil and Gas) Profits Levy Bill introduces a 25% tax on the ring-fence profits of oil and gas companies operating in the UK. This aims to raise additional revenue for the government while providing reliefs for investment in the energy sector.

Description

The bill imposes a 25% tax, the "energy (oil and gas) profits levy," on companies' ring-fence profits from oil and gas activities for qualifying accounting periods between May 26, 2022, and December 31, 2025. The levy applies as if it were corporation tax, incorporating existing corporation tax legislation. The bill defines "ring-fence profits" and includes specific provisions regarding:

Investment Expenditure Relief:

The bill provides relief for investment expenditure (capital, operating, and leasing) in oil-related activities, treating companies as if they incurred 80% additional expenditure for tax calculation purposes. This aims to encourage investment in the sector.

Specific Expenditure Definitions:

The bill defines "operating expenditure" (expenditure aimed at increasing oil extraction rates or reserves), "leasing expenditure" (payments for leasing mobile production assets for at least 5 years), and "disqualifying purposes" (expenditure related to tax avoidance arrangements).

Loss Carry-Forward and Group Relief:

The bill allows companies to carry forward qualifying levy losses to reduce future tax liabilities or utilize group relief within the same group. It includes detailed provisions for loss carry-back, carry-forward, and group relief mechanisms, mimicking those in existing corporation tax rules.

Transitional Provisions:

Transitional provisions handle accounting periods that straddle the levy's start (May 26, 2022) and end (December 31, 2025) dates, dividing them into separate periods for levy application.

Government Spending

The bill is expected to significantly increase government revenue through taxation of oil and gas company profits. Precise figures are not available in the provided text.

Groups Affected

• Oil and gas companies: Will face a new 25% tax on their ring-fence profits, potentially reducing profitability. However, investment expenditure relief could partially offset this impact.
• The UK government: Will receive increased tax revenue, potentially funding public services or debt reduction.
• Investors in the oil and gas sector: May see reduced returns due to the new levy, potentially impacting investment decisions.
• Consumers: Indirectly affected through potential impacts on energy prices, although the bill does not directly regulate pricing.

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