- In line with the government’s strategy to support households with energy bills and fund vital services, Energy Profit Levy (EPL) was announced in 2022 which increased the marginal rate of tax on North Sea oil and gas production to 75%.
- At Spring Budget 2024, the government announced that the EPL will remain in place until 31 March 2029 and will no longer come to an end on 31 March 2028 as previously announced. The rate will remain at 35% and there are no proposed changes to the deductibility of spend or investment allowances.
- The government also confirmed the early termination of EPL before its sunset date (now 31 March 2029, previously 31 March 2028) if oil and gas prices were to return to “historically more normal levels”. This will be legislated within the Spring Finance Bill 2024 through the previously announced ‘Energy Security Investment Mechanism’.
- Under the ESIM, the tax rate applicable to oil and gas will reduce back to 40% (from 75% currently) if both the average oil and gas prices fall to, or below, $71.40 per barrel for oil and £0.54 per therm for gas, for two consecutive quarters. These threshold prices will be adjusted annually based on the Consumer Prices Index (CPI).
- The ESIM is intended to give the oil and gas sector certainty to raise capital and invest in new and existing projects given the current high tax environment applicable to the UK upstream oil and gas sector and fiscal uncertainty which could erode investor confidence and result in diversion of investment from the UK Continental Shelf to other countries.
- Timing: the EPL has been extended to 31 March 2029. The legislation to give effect to the ESIM will take effect following Royal Assent of Spring Finance Bill 2024.
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