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Windfall tax on oil and gas firms increase from 25% to 35%

In the Autumn budget 2022 the windfall tax on the profits of oil and gas firms will increase from 25% to 35% and be extended until March 2028.

The government introduced the Energy (Oil and Gas) Profits Levy in May 2022 in response to exceptionally high prices that mean oil and gas companies are benefiting from extraordinary profits. Following a short period of technical consultation, the levy was legislated for in the Energy (Oil and Gas) Profits Levy Act 2022 in July 2022. This measure introduced a new, temporary 25% levy on ring fence profits of oil and gas companies. The measure also includes an investment allowance of 80%, reducing the tax if companies invest in oil and gas extraction in the UK.

As oil and gas prices remain high with oil and gas companies continuing to make extraordinary profits, the government announced changes to the levy at the Autumn Statement on 17 November 2022. From the 1st of‌‌‌ ‌‌January 2023, the Energy Profits Levy (EPL) rate will rise by 10 percentage points to 35% and will be extended to the 31st of‌‌‌ ‌‌March 2028.

The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure). Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%.

The government stated that:

This temporary measure will have an impact on up to around 200 companies operating in the UK or on the UK Continental Shelf. Impacted companies may pay more tax but may also receive tax relief through the new allowance.


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