The Energy Profits Levy (EPL) rules have now been finalised, and the rules are contained in the Energy (Oil & Gas) Profits Levy Act 2022. The Act passed through the House of Commons stages on 11 July 2022 and received Royal Assent on 14 July 2022.
Our newsletter of 22 June 2022 (https://cwenergy.co.uk/energy-profits-levy-draft-legislation-published-for-consultation/) referred to the consultation on the draft legislation, but the Bill as finalised reflects only two material changes of note.
Petroleum Revenue Tax
This change is to exclude from the EPL profits chargeable the amount of any CT income charged as a result of a repayment of Petroleum Revenue Tax to the extent the repayment is attributable to decommissioning expenditure, creating a PRT loss that is carried back.
The change addresses an anomaly we referred to in our Newsletter and at least means that whilst decommissioning expenditure is excluded from giving EPL relief, the PRT repayment derived from such expenditure should not be charged to EPL.
Certainty on expenditure qualifying for uplift
The original Bill included potentially very wide-ranging anti-avoidance wording that could have led companies to be concerned that any expenditure brought forward or incentivised by the 80% uplift could be caught by the anti-avoidance rules with the result that no uplift would be available.
These anti-avoidance rules have now been better targeted and should ensure that transactions that are commercially driven should not be barred from accessing the uplift.
The two changes noted are welcome. However, there are areas that may be clarified further, for example, that electrification costs can qualify for EPL uplift. We are expecting HMRC Guidance to be forthcoming and hopefully, this will cover these areas.
Companies should note that when the proposals were announced it was stated that the first instalment of EPL should be made with the last instalment payment. This has not been included in the legislation and therefore, the instalment rules apply in the way they do for RFCT (but with a shorter accounting period for the straddling period). Therefore a December year-end company should pay any tax due for the EPL period to 31 December 2022 on 8 December 2022 and 14 January 2023.
CW Energy LLP
14 July 2022