The UK Government has announced a temporary new Energy Profits Levy, widely described in the media as a “windfall tax”, on the profits of oil and gas companies operating in the UK and the UK Continental Shelf. This follows record high oil and gas prices over the past year. The stated policy objective of the new levy is to help fund more cost-of-living support for UK families.

A few key highlights:

• The new levy introduces a further 25% corporation tax charge (in addition to the existing 40% headline rate) on the profits of such companies, taking the headline rate to 65%.
• This will be a further tax on profits (rather than cash balances), and decommissioning relief and carried forward losses will be ignored in calculating such profits.
• In conjunction with the new 25% levy, the Government is introducing a new “investment allowance” at 80% of the expenditure, which it seems could potentially reduce the 25% levy to an effective rate of 5%.
• The new levy is to be phased out by 31 December 2025.
• Draft legislation is expected to be published shortly.