Budget: Windfall tax on oil and gas extended

The Chancellor has extended the Energy Profits Levy (EPL), the windfall tax on UK oil and gas profits, by a year to 31 March 2029. He also announced that the price floor, the Energy Security Investment Mechanism (ESIM), which was announced in June 2023 will be legislated for. 

The EPL was announced in May 2022 as a new tax on the profits of oil and gas companies operating in the UK and the UK Continental Shelf. When announced the rate was 25 percent, taking the headline rate of corporation tax on oil and gas sector UK profits from 40 percent to 65 percent. It was always intended to be a temporary measure that would be phased out when oil and gas prices return to historically more normal levels. It also had an original sunset clause of 31 December 2025.

At the Autumn Statement in November 2022 it was announced that there would be a 10 percent rise in the EPL rate to 35 percent from 1 January 2023 (taking the headline rate to 75 percent) and an extension of three years to 31 March 2028.

Following an announcement in June 2023 and a subsequent consultation, the terms of the ESIM were announced in November 2023. The ESIM 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.

During the Spring Budget 2024 the Chancellor announced that the sunset clause for EPL would be extended by a year to 31 March 2029. Unlike the ESIM (see below), legislation relating to the extension will not be included in the Spring Finance Bill 2024. It is unclear when it will be legislated and as such it is uncertain when groups will have to recognise the impact in their financial statements.   

The Government announced that the ESIM would be legislated in the Spring Finance Bill, and there do not appear to be any changes to the previously announced terms.  

For further information please contact:

• Claire Angell