HMRC is consulting on a draft version of the Energy (Oil and Gas) Profits Levy Bill which will introduce the new levy for accounting periods beginning on or after 26 May 2022.
The UK government intends to phase out the levy if oil and gas prices return to ‘historically more normal levels’ or by 31 December 2025 at the latest, via a sunset clause in the Bill.
The draft Bill is set out as follows:
Clause 1 introduces the charge to the levy. In essence, the levy will be charged at 25% on levy profits in a qualifying accounting period (beginning on or after 26 May 2022) and will apply to companies carrying on a ring-fence trade. Clause 1 also deals with losses, and provides that the levy is charged as if it were an amount of corporation tax.
Clauses 2 to 7 set out the new 80% investment allowance, designed to provide an immediate incentive to invest in ‘oil-related activities’ (broadly covering expenditure incurred in relation to increased oil extraction). Clause 5 aims to disallow expenditure incurred in connection with avoidance arrangements.
Clauses 8 and 9 define financing costs and decommissioning costs. These definitions are important because both costs are left out of account in calculating profits or losses for the purposes of the levy (see clause 1(4) and (5)).
Clause 10 introduces Schedule 1 which provides for the mechanism to carry back or carry forward qualifying levy losses and includes the time limits for making loss claims. Part 2 of the Schedule covers group relief for qualifying losses.
Clauses 11 to 13 apply much of the corporation tax administrative framework to the levy and include a requirement for companies making payments of the levy to report those payments to HMRC, to help HMRC monitor receipts.
Clause 14 makes necessary amendments to existing legislation to ensure the correct interaction of those provisions with the levy.
Clauses 15 to 17 set out transitional provisions for accounting periods which straddle the start and end dates of the levy.
Colin Smith, energy tax partner at PwC UK said the Bill’s provisions were in line with the chancellor’s announcement on 26 May. ‘As such, it contains the same policy issues initially identified. Specifically, it does not take into account the lifecycle of the industry: there is no relief for historical tax losses or expenditure already incurred and no tax deductions are allowed for decommissioning.
‘Of wider interest perhaps is the formal name: the “energy (oil and gas) profits levy”. To the cynical among us, this might suggest that there could be a further levy on other parts of the energy sector,’ Smith commented.
The consultation runs until 11.45pm on 28 June 2022.
HMRC is consulting on a draft version of the Energy (Oil and Gas) Profits Levy Bill which will introduce the new levy for accounting periods beginning on or after 26 May 2022.
The UK government intends to phase out the levy if oil and gas prices return to ‘historically more normal levels’ or by 31 December 2025 at the latest, via a sunset clause in the Bill.
The draft Bill is set out as follows:
Clause 1 introduces the charge to the levy. In essence, the levy will be charged at 25% on levy profits in a qualifying accounting period (beginning on or after 26 May 2022) and will apply to companies carrying on a ring-fence trade. Clause 1 also deals with losses, and provides that the levy is charged as if it were an amount of corporation tax.
Clauses 2 to 7 set out the new 80% investment allowance, designed to provide an immediate incentive to invest in ‘oil-related activities’ (broadly covering expenditure incurred in relation to increased oil extraction). Clause 5 aims to disallow expenditure incurred in connection with avoidance arrangements.
Clauses 8 and 9 define financing costs and decommissioning costs. These definitions are important because both costs are left out of account in calculating profits or losses for the purposes of the levy (see clause 1(4) and (5)).
Clause 10 introduces Schedule 1 which provides for the mechanism to carry back or carry forward qualifying levy losses and includes the time limits for making loss claims. Part 2 of the Schedule covers group relief for qualifying losses.
Clauses 11 to 13 apply much of the corporation tax administrative framework to the levy and include a requirement for companies making payments of the levy to report those payments to HMRC, to help HMRC monitor receipts.
Clause 14 makes necessary amendments to existing legislation to ensure the correct interaction of those provisions with the levy.
Clauses 15 to 17 set out transitional provisions for accounting periods which straddle the start and end dates of the levy.
Colin Smith, energy tax partner at PwC UK said the Bill’s provisions were in line with the chancellor’s announcement on 26 May. ‘As such, it contains the same policy issues initially identified. Specifically, it does not take into account the lifecycle of the industry: there is no relief for historical tax losses or expenditure already incurred and no tax deductions are allowed for decommissioning.
‘Of wider interest perhaps is the formal name: the “energy (oil and gas) profits levy”. To the cynical among us, this might suggest that there could be a further levy on other parts of the energy sector,’ Smith commented.
The consultation runs until 11.45pm on 28 June 2022.
