Parliament Enacts 25% Oil and Gas Profits Levy in Fast-Track Procedure
Taxes are about to get a lot more expensive for British oil and gas producers. On 11 July 2022, the House of Commons voted to impose a 25% additional levy on their profits when it enacted the Energy (Oil and Gas) Profits Levy Bill [Bill 135 of 2022-23], under the fast-track procedure.
In response to the increased cost of living caused in part by rising world oil and gas prices, on 26 May 2022 then-Chancellor Rishi Sunak announced measures to support UK households. He proposed to pay for these measures in part by levying a new tax on the profits from North Sea oil and gas production, the Energy Profits Levy.
The oil and gas sector now pay a 40% headline tax rate on profits from oil and gas production in the UK and UK Continental Shelf. This consists of a 30% ring-fence corporation tax and a 10% supplementary charge. The Energy Profits Levy imposes an additional 25% surcharge on the extraordinary profits the oil and gas sector now earn and includes an 80% investment allowance. The levy is charged on top of the existing 40% headline rate, bringing the combined tax rate on profits to 65%. With the new levy taking effect retroactive to 26 May 2022, the HM Treasury estimates that the levy will raise around GBP 5 billion in its first 12 months.
The Treasury also published a technical note that provides additional details on how the Energy Profits Levy will work in practice. This note confirms that the levy is temporary and will be phased out when oil and gas prices return to historically more normal levels, introducing a sunset clause effective at the end of 2025.
The proposal went from draft legislation to enactment in less than three weeks. On 21 June 2022, HM Revenue & Customs published a draft of the legislation and a draft version of its explanatory notes seeking technical feedback before the bill was introduced. The bill was introduced on 5 July 2022 and adopted just six days later, following the fast-track procedure.