HMRC has issued draft legislation for consultation for the new temporary Energy (Oil and Gas) Profits Levy which was announced last month.
The levy will be set at 25% of profits and will apply to the company's ring-fenced profits from 26 May 2022. It will take the combined tax rate for these companies up to 65%.
- The tax base will be computed in a similar manner to the existing taxes which apply to oil and gas companies, i.e. the Ring Fence Corporation Tax and Supplementary Charge.
- Profits for the purposes of the levy will be profits chargeable to Corporation Tax before taking account of losses brought forward, group relief, financing and decommissioning costs.
- The levy will be treated as an amount of Corporation Tax for the purposes of reporting, payment and assessment, rights of appeal, interest and penalties.
- There will be a new 80% investment allowance which will allow oil and gas companies who reinvest their profits (to be known as ‘Investment expenditure’) to obtain tax relief for up to 91p of every £1 they reinvest.
- Qualifying investment expenditure will include capital expenditure, operating expenditure, or leasing expenditure that has been incurred for the purposes of oil-related activities (and not for any disqualifying purpose), and which does not consist of financing or decommissioning costs.
- Losses including those created or increased by the investment allowance can be carried back or group relieved in the same way as other corporation tax losses.
The draft legislation includes a sunset clause which means that the levy cannot apply after 31 December 2025 without new legislation being passed by the government.
The consultation closes on 28 June 2022. Responses should be sent to
Useful guides on this topic
Losses: Trading and other losses
When can a company offset its losses? What restrictions are there? How are loss claims made?
Corporation Tax instalment payments
When does Corporation Tax (CT) have to be paid by instalments? What are the rules and deadlines?
External link
Open consultation: Draft legislation: Energy (Oil and Gas) Profits Levy Bill
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