The UK government has outlined its proposals for a windfall tax on the extraordinary profits of oil and gas companies which will be used to support those most heavily affected by the increased cost of living.
In a statement to the House of Commons on 26 May 2022, the Chancellor of the Exchequer outlined the following new measures which aim to address the most serious impacts of the cost of living crisis:
a new temporary energy profits levy, charged on oil and gas company profits at a rate of 25%; and
a new 80% investment allowance to incentivise investment in the sector.
The new levy is an additional tax on UK oil and gas profits on top of the existing 40% headline rate of tax (30% ring-fence corporation tax rate plus 10% supplementary charge), taking the combined rate of tax on profits to 65%. Companies will not be able to offset previous losses or decommissioning expenditure against profits subject to the levy, although carry-back and carry-forward of levy losses will be available.
The levy takes effect from 26 May 2022 and legislation will be introduced shortly. The levy is expected to raise £5bn over 12 months and will be phased out when oil and gas prices return to ‘historically more normal levels’ or by 31 December 2025 at the latest (via a sunset clause in the legislation).
The investment allowance will provide an ‘immediate incentive for the oil and gas sector to invest in UK extraction’ with relief at the point of investment. The Treasury’s Energy Profits Levy Factsheet sets out how, for every £1 invested, companies will receive 91p relief.
The energy profits levy will not apply to the electricity generation sector, where extraordinary profits are also being realised as a result of the effect of rising gas prices on the energy market as a whole. The government will therefore, in the longer term, pursue energy market reforms to ensure the market price for energy reflects the cost of producing that energy.
Funds raised from the levy will be used to target support for those most deeply impacted by the cost of living crisis, with a payment of £650 made to 8 million households in receipt of means-tested benefits, £300 paid to pensioners who receive the winter fuel allowance, and an additional £150 for those receiving disability benefits.
Limited support will also be available universally (regardless of income), with the previously announced October energy bills ‘rebate’ of £200 instead being doubled to £400 and with the requirement to repay scrapped. This means households will receive a £400 reduction in their energy bills from October 2022.
The chancellor also announced that, from 2023, benefits will be uprated by September 2022 CPI.
The UK government has outlined its proposals for a windfall tax on the extraordinary profits of oil and gas companies which will be used to support those most heavily affected by the increased cost of living.
In a statement to the House of Commons on 26 May 2022, the Chancellor of the Exchequer outlined the following new measures which aim to address the most serious impacts of the cost of living crisis:
a new temporary energy profits levy, charged on oil and gas company profits at a rate of 25%; and
a new 80% investment allowance to incentivise investment in the sector.
The new levy is an additional tax on UK oil and gas profits on top of the existing 40% headline rate of tax (30% ring-fence corporation tax rate plus 10% supplementary charge), taking the combined rate of tax on profits to 65%. Companies will not be able to offset previous losses or decommissioning expenditure against profits subject to the levy, although carry-back and carry-forward of levy losses will be available.
The levy takes effect from 26 May 2022 and legislation will be introduced shortly. The levy is expected to raise £5bn over 12 months and will be phased out when oil and gas prices return to ‘historically more normal levels’ or by 31 December 2025 at the latest (via a sunset clause in the legislation).
The investment allowance will provide an ‘immediate incentive for the oil and gas sector to invest in UK extraction’ with relief at the point of investment. The Treasury’s Energy Profits Levy Factsheet sets out how, for every £1 invested, companies will receive 91p relief.
The energy profits levy will not apply to the electricity generation sector, where extraordinary profits are also being realised as a result of the effect of rising gas prices on the energy market as a whole. The government will therefore, in the longer term, pursue energy market reforms to ensure the market price for energy reflects the cost of producing that energy.
Funds raised from the levy will be used to target support for those most deeply impacted by the cost of living crisis, with a payment of £650 made to 8 million households in receipt of means-tested benefits, £300 paid to pensioners who receive the winter fuel allowance, and an additional £150 for those receiving disability benefits.
Limited support will also be available universally (regardless of income), with the previously announced October energy bills ‘rebate’ of £200 instead being doubled to £400 and with the requirement to repay scrapped. This means households will receive a £400 reduction in their energy bills from October 2022.
The chancellor also announced that, from 2023, benefits will be uprated by September 2022 CPI.
.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")