Final draft of legislation published for the Electricity Generator Levy

The final draft legislation was included within the Spring Finance Bill, published on 23 March 2023.

Final draft legislation published March 2023

The final draft Electricity Generator Levy (EGL) legislation has been released within Finance (No.2) Bill 2023 (the Spring Finance Bill). There are important changes compared to the draft released on 20 December 2022, in relation to the treatment of Joint Ventures (JVs) and significant minority shareholders. The legislation also clarifies certain administrative points. 

Further to our previous article on EGL, which related to draft legislation published in December 2022, we explore the key changes between this and the final draft included within the Spring Finance Bill.

Surrender of shortfalls

The special rules for JVs and significant minority shareholdings can require the relevant JV member/minority shareholder to treat amounts from selling or hedging output of the JV as their own exceptional generation receipts. This creates the potential for inequitable results. 

For example, a JV member could potentially recognise a loss on hedging activities relating to the JV and it may not have other exceptional generation receipts available to offset this loss against. As a result, legislation has been introduced to allow such ‘shortfalls’ to be surrendered between the JV and JV member (or significant minority shareholder and its minority investor) provided certain conditions are met. Any payment made in exchange for such a surrender should not be subject to corporation tax.

Transparent companies election

A general principle within the EGL legislation is that the calculation of exceptional generation receipts in respect of a qualifying JV or significant minority shareholder takes account of transactions at both the JV and JV member level. The final draft of the legislation includes an option for companies to elect to be treated as transparent (subject to conditions being met). Broadly, the impact of making this election is that the company is deemed to be a partnership such that each shareholder should be attributed all generation receipts and allowable costs etc. The election is made by notice to HMRC and must specify the date from which it will have effect (which may be no earlier than 12 months before the day on which notice is given).

Instalment payment regime

Taxpayers will need to take account of EGL when making corporation tax instalment payments. Any EGL that would have been due in relation to pre-commencement instalments is due as part of the first instalment following the enactment of the legislation. Taxpayers are also required to notify HMRC of the amount of EGL included in the instalment payment on or before the date of payment.

Nomination of lead member of a group

Groups can nominate the lead member by filing a notice to HMRC which specifies the date from which it will have effect (which may be no earlier than 12 months before the day on which notice is given). The lead member of the group will be the entity that is primarily liable to pay and report the EGL.