Last Thursday, the Chancellor of the Exchequer announced a new temporary Energy Profits Levy (“EPL”) of 25 percent and supports for the cost of living. The Chancellor's Statement and supporting publications are available. Read on for more information on the measures announced.
The Chancellor announced the following:-
- a temporary EPL surcharge of 25 percent on the extraordinary profits of the oil and gas sector applies to profits arising on or after 26 May 2022. The levy includes a new ‘super-deduction’ style relief to encourage investment in oil and gas extraction in the UK;
- a one-off non-taxable Cost of Living Payment of £650, which will be paid in two instalments to provide additional support to those in receipt of income-related benefits;
- A separate additional payment of £150 will be made in September to claimants of certain disability benefits;
- Pensioner households will receive a one-off £300 Pensioner Cost of Living Payment to help them stay warm in winter; and
- A doubling of support to £400 from £200 for household energy bills through an expansion of the Energy Bills Support Scheme. The full £400 payment will now be made as a grant, which will not be recovered through higher bills in future years.
The Energy Profits Levy (“EPL”)
The EPL is temporary and will be phased out when oil and gas prices return “to historically more normal levels.” The relevant legislation will include a sunset clause, which will remove the tax after 31 December 2025.
The tax base for the EPL will be computed in a similar manner to the existing taxes which apply to oil and gas companies (Ring Fence Corporation Tax and Supplementary Charge) and will be included in the three-instalment payment regime for large companies. Companies who have an accounting period that straddle 26 May 2022 will be required to apportion their profits.
The EPL will apply to a company’s ‘ring fence profits’, computed with a number of adjustments, as follows, and will be charged as if it were an amount of corporation tax:-
- finance costs are left out of account;
- decommissioning costs are left out of account;
- an investment incentive is available which provides an 80 percent allowance generated on investment expenditure (capital expenditure and some operating and leasing expenditure) – this can immediately be used to reduce the profits subject to the levy;
- loss relief will be available, but there is no cross over to any other ring fence taxes.
Additional boxes will be added to the corporation tax return form CT600 to report EPL profits and how much is payable. The Government will shortly introduce a Bill to legislate for it.
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