The Energy Profits Levy (“EPL”) is to be increased from January 2023 but will not now end in December 2025 as planned and a new temporary levy is being introduced for electricity generators.
From 1 January 2023, the EPL on oil and gas companies will increase from 25 percent to 35 percent, with the levy remaining in place until the end of March 2028. The investment allowance will be reduced to 29 percent for all investment expenditure (other than decarbonisation expenditure). Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80 percent.
The Government will legislate for these measures in Autumn Finance Bill 2022, except the changes related to decarbonisation expenditure which will be legislated for in Spring Finance Bill 2023.
A new, temporary 45 percent levy will be introduced for electricity generators; this will be known as the Electricity Generator Levy (“EGL”). According to the Government publications, together these measures will raise over £55 billion from 2022/23 until 2027/28.
The EGL will be levied on “extraordinary returns from low-carbon UK electricity generation”. For the purposes of the tax, extraordinary returns will be defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh.
The EGL will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million. The tax will apply to extraordinary returns arising from 1 January 2023 and will be legislated for in Spring Finance Bill 2023.
The Government will also consult with stakeholders over the coming months as part of a review of the UK’s long-term tax treatment of the North Sea after the EPL ceases.