Summary of updates to the energy tax landscape

Energy Profits Levy (EPL) and Electricity Generator Levy (EGL) updates in the Spring Finance Bill and the announcement of a fiscal review.

EPL and EGL updates and a fiscal review.

Amendments have been made to the Energy Generator Levy (EGL) to clarify the attribution of generation receipts to participants in a joint venture (JV), even where it is not itself a generating undertaking. In addition, draft HMRC guidance, including the template payment notification form, has been circulated to stakeholders. Large companies with a December year end will be required to make a first EGL payment on 14 July 2023 if Royal Assent is prior to this date - this seems likely as the parliamentary website is currently showing 11 July as the expected date for Royal Assent. The Energy Profits Levy (EPL) Energy Security Investment Mechanism (ESIM) has been announced to introduce a price floor which will stop the application of EPL when oil and gas prices fall to a fixed level. EPL legislative amendments have widened the scope of the decarbonisation allowance to bring into scope onshore oil wells as well as activities within Northern Ireland waters. Lastly, HM Treasury has issued the terms of reference for the Review of the Oil and Gas Fiscal Regime. 

EGL updates

EGL legislation published within the Spring Finance Bill 2023 has been amended to clarify that a participant in a JV is chargeable to attributed receipts, where the participant is not otherwise treated as a qualifying generating undertaking.

The first payment of EGL is due on the first corporation tax quarterly instalment date after Royal Assent currently scheduled for 11 July 2023 (which is before 14 July 2023, when large companies are due to make a payment.)

Draft HMRC guidance, including a template payment notice, has been circulated to stakeholders. Whilst it provides helpful detail and examples in relation to HMRC’s interpretation of the legislation, there remain areas of uncertainty (e.g. treatment of non-residents, certain JV scenarios).

Oil and gas taxation

In the 2022 Autumn Statement, a review of the long-term fiscal regime was announced. The review will consider how the fiscal regime can incentivise investment in the UK Continental Shelf whilst maintaining long term energy security, meeting net zero ambitions and ensuring a fair return from our natural resources. The scope covers Petroleum Revenue Tax, ring fence corporation tax (including the supplementary charge), but not EPL. The review report will be published at the end of the year. 

The ESIM announced last month disapplies EPL when both average oil and gas prices over two successive quarters meet or fall below $71.40/barrel for oil and £0.54 per therm for gas. The Government is to set out further details in due course. 

EPL amendments have widened the scope of the decarbonisation allowance to include onshore activities and facilities in Northern Ireland waters.