The Chancellor delivered the Budget today.
No changes were announced to the rates of ring fence corporation tax, supplementary charge to corporation tax or the energy profits levy (EPL).
EPL to remain as currently enacted
There was no announcement on any change to EPL and therefore this will remain in place until the earlier of 31 March 2030 or when the switch off mechanism (being the Energy Security Investment Mechanism (‘ESIM’)) due to lower oil and gas prices is triggered.
Oil and Gas Price Mechanism (OGPM)
Published with the Budget documents was a summary of responses to the recent OGPM consultation. This document included Government decisions on the framework of the new regime that is to apply after EPL ends.
In summary, it has been decided that the OGPM will:
- Will be a revenue-based model;
- Additional tax charge at 35%;
- The additional charge will be applied only on revenue in excess of certain thresholds;
- The charge will be based on realised prices and not market values;
- Thresholds are set at $90 per barrel for oil and 90 pence per therm for gas;
- Thresholds are to increase by inflation using CPI;
- Government intends to legislate in Finance Bill 2026/27.
Government acknowledged the challenges when dealing with hedging and has said it will work with industry to strike a balance between administrative feasibility and policy integrity.
Government stated they will seek to leverage existing corporation tax provisions where possible to minimise compliance burdens.
Decommissioning relief deeds (DRD) – Energy Profit Levy (EPL)
The Government has published draft legislation to prevent DRD claims as a consequence of decommissioning expenditure being incurred but not being deducted from taxable profits subject to EPL. The restriction is to apply to expenditure incurred after 26 November 2025.
Other
Government has also published the North Sea Future Plan which sets out details of the future regulatory approach to North Sea licencing . They note that “The Plan sets out the action the government is taking to support ongoing investment and opportunities in oil and gas, ensuring a fair, orderly and prosperous transition in the North Sea”.
Comments
Many will be disappointed that EPL removal has not been accelerated. The Government seemingly now admits that “windfall” hydrocarbon prices are actually much higher than the ESIM. But remain unwilling to disturb the existing EPL legislation.
The choice of the revenue based model for the replacement windfall tax, combined with what can be seen as low threshold prices, is particularly hard on companies that continue to invest in the basin. This may mean they will not have overall positive cash flow but still face the OGPM additional tax charge.
Whether these announcements encourage investment in the basin remains to be seen.
With regards to the DRD changes it is unclear how the draft legislation can apply to prevent a contractual claim under a DRD . The law is only to apply to claims made in respect of expenditure incurred after Budget day and so companies may want to look again at whether claims should now be made for past costs.
Should you require any further advice in respect of the 2025 Budget, please get in touch.
CW Energy LLP
November 2025