Overview

The Energy (Oil and Gas) Profits Levy Bill introduces a 25% tax on the ring-fenced profits of oil and gas companies operating in the UK. This tax aims to generate additional revenue for the government from the high profits these companies are making amidst rising energy prices, and is intended to run until December 2025.

Description

The bill imposes a 25% levy on a company's "ring-fenced" profits (profits from oil and gas activities) for accounting periods between May 26, 2022, and December 31, 2025. The calculation of these profits excludes financing and decommissioning costs. However, it includes an additional 80% allowance for investment expenditure aimed at increasing oil extraction rates or extending the operational lifespan of oil facilities. Specific definitions are provided for "operating expenditure," "leasing expenditure," and "disqualifying purposes" (those designed to avoid the levy). The bill also outlines rules for carrying forward or back losses and group relief provisions for qualifying levy losses, ensuring that appropriate adjustments are made if there are alterations in a company's profits. Transitional provisions are included for accounting periods that span the levy's start and end dates. The bill also incorporates existing corporation tax provisions for administration, information reporting, and appeals, ensuring alignment with existing tax regulations.

Government Spending

The bill is expected to significantly increase government revenue, though precise figures are not explicitly stated in the provided text. The revenue generated will be added to the public revenue to help defray public expenditure.

Groups Affected

• Oil and gas companies: Will be directly affected by the 25% levy on their ring-fenced profits. The impact will vary depending on their profitability and investment strategies.
• Investors in oil and gas companies: May experience reduced returns due to the levy impacting company profits.
• UK Government: Will benefit from increased tax revenue, potentially impacting government spending and fiscal policy.
• Consumers: The impact on consumers is indirect and uncertain. While the levy might reduce government borrowing, it could also influence energy prices, depending on how the levy is passed down the supply chain.

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