This note reflects the law as at 31 May 2026.
Energy Profits Levy (EPL) is a temporary levy introduced with effect from 26 May 2022 on the profits of companies producing oil and gas in the UK or on the UK Continental Shelf. It was introduced to capture a perceived windfall for industry arising as a result of the significant increase in oil and gas prices during 2022 primarily as a result of the Russian invasion of Ukraine.
The Levy applies to company’s ring fence profits and is charged as if it were an amount of Corporation Tax. The ring fence tax base is adjusted to disallow financing and decommissioning costs. Petroleum revenue tax repayments attributable to losses generated by decommissioning expenditures are not chargeable to the Levy, but other PRT repayments are brought into charge. Certain expenditures are uplifted in calculating the tax, the uplift being termed additional expenditure, as set out below.
The rate of Levy was set at 25% for profits arising from 26 May 2022 to 31 December 2022 and now is applied at 35% for profits arising from 1 January 2023 to 31 October 2024 and 38% from 1 November to 31 March 2030 (subject to the ESIM – see below). Where a company has an accounting period which straddles the relevant commencement, rate change or end dates, the periods before and after the relevant date will be treated as separate accounting periods and profits must be apportioned on a just and reasonable basis between the periods. In practice, HMRC have tended to expect “just and reasonable” to be more reflective of an “actual basis” for these purposes rather than, e.g. time apportionment.
A so-called Energy Security Investment Mechanism (ESIM) was included in the spring 2024 Finance Bill. This measure will end the Energy Profits Levy early if the 6-month average price for both oil and gas is at or below the ESIM threshold prices. The ESIM threshold prices are 71.40 dollars per barrel for oil and £0.54 per therm for gas. These thresholds are based on a 20-year average to the end of 2022. These thresholds are adjusted from 1 April 2024, and annually thereafter by the preceding December’s Consumer Prices Index figure. This measure was included in Finance Act (No 2) 2024.
Although the EPL was intended to be a temporary measure, the government announced in Autumn 2024 that it would legislate for a permanent replacement for the EPL. The EPL replacement is called the Oil & Gas Price Mechanism (OGPM). Details on the OGPM are set out below. Although the OGPM is currently not enacted, it is expected to be in force by 31 March 2030 or earlier if the EPL regime ceases (either under the ESIM process noted above or otherwise).
Capital Allowances
Currently a first year allowance is available on most capital expenditure for CT, SCT and EPL.
Additional expenditure
An allowance or uplift is available where a company incurs qualifying “investment expenditure”.
Although when the EPL was introduced general capital expenditure, qualifying operating costs and some leasing expenditure could qualify for an EPL deduction uplift, these expenditures no longer attract uplift from 1 November 2024.
Decarbonisation expenditure
There remains, from 1 November 2024, an uplift on expenditure relating to decarbonisation of upstream petroleum production, where the main purpose of incurring the expenditure is to reduce greenhouse gas emissions from a company’s ring fence trade. Qualifying expenditure can include the cost to provide or modify an alternative energy asset (that generates or stores energy other than fossil fuels), the cost to reduce flaring and venting, the cost to capture, monitor or measure greenhouse gases. The EPL uplift applied for such expenditure is 66%.
As with the basic EPL deduction, financing or decommissioning costs do not qualify for uplift. There are also rules to prevent relief for second hand expenditure and anti-avoidance rules to prevent relief where expenditure is incurred for a disqualifying purpose, which targets certain arrangements where one of the main purposes of the arrangements is to secure a levy advantage.
The relief is not field-specific, and unlike the SCT Investment allowance the amount of uplift is automatically deducted in calculating the levy profit or loss.
Levy losses
CT losses are not deductible for EPL purposes. Instead, the scheme has its own loss regime dealing with Levy losses generated on or after 26 May 2022.
Any qualifying Levy loss may be carried forward or back or group relieved against levy profits subject to the normal CT rules. A Levy loss can be offset against the profits of the previous 12 months, with the carry back extended to 3 years in the case of a “terminal loss”. Unrelieved qualifying levy losses can be carried forward to subsequent levy periods and set off against levy profits so long as the company continues to carry on the ring fence trade.
A separate Levy group relief regime applies which also mirrors the CT regime. Change in ownership and transfer of trade restrictions apply.
Administration
Collection and management of EPL follows rules of Ring Fence Corporation Tax (RFCT) rules in respect of returns, payments, enquiries, assessment, information powers, penalties, interest and appeals.
A new return, the so called ‘Quantification Notice’ is required to be submitted to HMRC specifying the amount of EPL payment included within any payment made, the accounting period it relates to, UTR number and the expected date of payment. Failure to meet the notification requirement can lead to initial penalty of £300 followed by daily penalties up to £60.