Chancellor Jeremy Hunt has announced the extension of the Energy Profits Levy (EPL) on North Sea oil and gas firms’ profits by one year to 2029.
The levy, introduced in May 2022 following a surge in energy prices due to Russia‘s invasion of Ukraine, is forecast to raise £1.5 billion amidst expectations of sustained high energy prices.
Colin Smith, Energy and Infrastructure Tax Partner at PwC UK, highlighted the impact of the extension on the sector, noting the need for oil and gas groups to estimate the levy’s impact on their 2023 year-end results.
Colin Smith commented: “From an immediate practical perspective, oil and gas groups that have not yet released their 2023 year end results may have to provide an estimate of the impact of the EPL extension.
“International financial reporting standards require companies to disclose the deferred tax impact of changes in tax rates or tax laws that are enacted or announced after the reporting period.”
Kate Mulvany, Principal Consultant at Cornwall Insight, raised concerns about the potential negative effects of the extension on investor confidence and energy sector employment, emphasising the importance of reinvesting the levy proceeds in the energy transition to mitigate risks to energy security and decarbonisation initiatives.
Kate Mulvany said: “The stability of the UK’s regulatory environment has historically been a significant draw for investors looking to support renewable energy projects.
“Prolonging the windfall tax could weaken investor confidence, at a time when the UK is seeking record levels of investment to deliver the transition to net zero.
“Without a clear commitment to reinvest the windfall tax proceeds in the energy transition, the extension could affect more than the oil and gas sector.
“Extension to the EPL could further unsettle the GB energy generation investment landscape unless sufficient assurances are given that the tax on generators will not follow suit.”
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