The Government has launched a consultationopens in a new tab on the future of oil and gas taxation in the UK.
The proposed new Oil and Gas Price Mechanism aims to tax oil and gas income arising in the UK where there are price shocks. This new ‘windfall tax’ will replace the Energy Profits Levy (EPL) which was first introduced in 2022 and is due to end in 2030 (or earlier if the Energy Security Investment Mechanism is triggered). The ring fence tax regime which applies corporation tax at a rate of 30 percent and the supplementary charge to corporation tax at 10 percent will remain in place.
Two policy options are put forward:
- A revenue-based model which will tax revenues above a price threshold. It is envisaged that taxable revenues will be after the effect of any hedging, but no costs will be deductible. This tax may apply on a transaction-by-transaction basis which may give rise to a significant administrative burden; or
- A profit-based model which will tax profits equal to the difference between realised average market prices and a threshold. Profits will be calculated on the same basis as the EPL, with no relief for decommissioning or finance costs.
