Electricity Generator Levy (EGL)
The Government has announced a new levy on the revenues of certain low carbon electricity generators. The EGL will be charged at 45 percent and apply to revenues above £75 per MWh.
The levy will be applied to groups generating electricity from nuclear, renewable and biomass sources. It is limited to groups generating more than 100 GWh per annum of electricity and will not apply to electricity generated under a Contract for Difference entered into with the Low Carbon Contracts Company. There is an allowance per group of £10 million per annum.
The calculation of receipts will take account of or be adjusted for certain items, including revenue from accepting balancing market offers, the net impact of imbalance settlement and gains or losses on financial derivatives used to hedge output and/or group trading relating to output.
The calculation will need to be undertaken on a group basis with a group company responsible for administering the levy for the group (the responsible company).
The EGL will need to be paid in line with the responsible company’s normal payment dates for corporation tax and will be administered in the same way as corporation tax with amounts returned with the responsible company’s corporation tax return.
The EGL will apply from 1 January 2023 to 31 March 2028 and will be included in Spring Finance Bill 2023 (draft legislation will be published in mid-December). The EGL is expected to raise over £14 billion.
Changes to the Energy Profits Levy (EPL)
The Government has announced a 10 percent rise in the EPL rate to 35 per cent from 1 January 2023 and an extension to 31 March 2028. This results in a headline rate of corporation tax on the profits of oil and gas companies operating in the UK and the UK Continental Shelf to 75 percent. However, the effective tax rate may be higher as finance costs are not fully deductible.
The investment allowance will also be reduced to 29 percent for qualifying expenditure broadly maintaining its existing cash value. Decarbonisation expenditure (e.g. modifying existing installations to use power from offshore windfarms) 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. We expect that this allows for time to define qualifying expenditure.
With the changes above, the EPL is expected to raise over £40 billion.
For any further query, please reach out to Claire Angell or Amy Hunt.