Legalize / United Kingdom / Public General Act

Energy (Oil and Gas) Profits Levy Act 2022

Type Public General Act

Publication 2022-07-14

State In force

Department Statute Law Database

Source legislation.gov.uk

Reform history JSON API

Charge to tax

Additional expenditure treated as incurred for purposes of section 1

1

(1) If a company carries on a ring fence trade in a qualifying accounting period, a sum equal to 38% of its levy profits for that period is to be charged on the company as if it were an amount of corporation tax chargeable on it.

(2) The charge is referred to in this Act as “energy (oil and gas) profits levy” (or as “the levy”).

(3) A qualifying accounting period is an accounting period of a company which—

(a) begins on or after 26 May 2022, and

(b) ends on or before 31 March 2030,

(but see also sections 15 and 16 for provision about a case where a company’s accounting period straddles either of those dates).

(4) A company’s levy profits or loss for a qualifying accounting period are the amount which, on the following assumptions, would be determined for corporation tax purposes to be the company’s ring fence profits or loss for that period.

(5) The assumptions are that—

(a) the company has incurred such additional expenditure (if any) in that period as is provided for by section 2(3),

(b) that additional expenditure is allowable as a deduction in calculating the amount of the profits or loss of any ring fence trade of the company for the period,

(c) financing costs and decommissioning costs are left out of account in calculating the amount of the profits or loss of any ring fence trade of the company for the period (see also sections 8 and 9),

(d) any amount that would otherwise be brought into account under section 301 of CTA 2010 (effect of repayment of petroleum revenue tax) in calculating the amount of the profits or loss of any ring fence trade of the company for the period is left out of account so far as the amount is referable to the decommissioning part of an allowable loss, and

(e) no account is to be taken of any provision of Part 4, 5 or 5A of CTA 2010 (loss relief, group relief and group relief for carried forward losses) or of sections 303A to 303D of that Act (use of non-decommissioning losses of ring fence trades).

(6) For the purposes of subsection (5)(d) an amount of petroleum revenue tax which is repaid as mentioned in section 301(1) of CTA 2010 is referable to the decommissioning part of an allowable loss so far the allowable loss giving rise to the repayment is attributable, on a just and reasonable basis, to expenditure allowable under section 3(1)(i) or (j) of OTA 1975.

(7) In this Act any reference to the qualifying levy profits or loss of a company for an accounting period are to the levy profits or loss for the period as determined in accordance with subsections (4) and (5).

(8) If a company makes a qualifying levy loss for an accounting period, relief may be available for some or all of the loss in accordance with—

(a) Part 1 of Schedule 1 (carry back or forward of qualifying levy losses), or

(b) Part 2 of that Schedule (group relief for qualifying levy losses).

(9) In accordance with section 11, the charging of the levy as if it were an amount of corporation tax is to be taken as applying all enactments applying generally to corporation tax.

Relief for investment expenditure

Additional expenditure treated as incurred for purposes of section 1

2

(1) This section applies for the purposes of section 1 if, in a qualifying accounting period, a company has incurred investment expenditure.

(2) Expenditure is “investment expenditure” of a company so far as the expenditure—

(a) is capital expenditure on the de-carbonisation of its upstream petroleum production,

(b) is incurred for the purposes of oil-related activities,

(d) does not consist of financing costs or decommissioning costs.

(3) For the purposes of section 1 the company is to be treated as if, in addition to the investment expenditure incurred by it in the accounting period, it had incurred in that period expenditure of an amount equal to 66% of the amount of that investment expenditure.

(4) For the purposes of this section—

(a) if investment expenditure is incurred partly for the purposes of oil-related activities and partly for other purposes, the expenditure is to be attributed to the oil-related activities on a just and reasonable basis, and

(b) if a company incurs expenditure part of which is capital expenditure on the de-carbonisation of its upstream petroleum production and part of which is not, the expenditure is to be apportioned on a just and reasonable basis.

(5) This section needs to be read with section 6 (which prevents recycling etc of assets to generate relief).

Section 2: meaning of “operating expenditure”

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 2: meaning of “leasing expenditure”

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 2: meaning of “disqualifying purposes”

5

(1) Expenditure is incurred for disqualifying purposes for the purposes of section 2 so far as it arises directly or indirectly in connection with, or otherwise in consequence of, any avoidance arrangements.

(2) For this purpose arrangements are “avoidance arrangements” if—

(a) the main purpose, or one of the main purposes, of the arrangements is to secure a relevant levy advantage, and

(b) it is reasonable, taking account of all the relevant circumstances—

(i) to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or

(ii) to regard the arrangements as circumventing the intended limits relating to the relief under section 2(3) or as otherwise exploiting shortcomings in this Act.

(3) For this purpose “a relevant levy advantage” includes—

(a) relief or increased relief from the levy,

(b) repayment or increased repayment of the levy,

(d) avoidance of a possible assessment to the levy,

(e) deferral of a payment of the levy or advancement of a repayment of the levy, and

(f) avoidance of an obligation to deduct or account for the levy.

(4) In this section “arrangements” includes any transaction, series of transactions, scheme or arrangement, whether or not legally enforceable.

Recycling etc of assets to generate relief

6

(1) Expenditure incurred at any time by a company on the acquisition of an asset is not to count as investment expenditure for the purposes of section 2 if—

(a) expenditure was incurred previously by the company or another company in acquiring, leasing, bringing into existence or enhancing the value of the asset, and

(b) any of that expenditure has been taken into account, or would on the applicable assumption have been taken into account, for the purposes of the levy.

(2) The cases to which this section applies include (for example)—

(a) any case where the asset acquired is an interest in an oil field, and

(b) any case where the asset is acquired in connection with a transfer to the company of an interest in an oil field (whether or not the asset is acquired at the time of the transfer).

(3) In this section—

(a) any reference to expenditure incurred by a company in leasing an asset is to expenditure incurred by it under an agreement under which the asset was leased to the company,

(b) any reference to the applicable assumption in the case of any expenditure incurred at any time is to the assumption that this Act were fully in force and applied to expenditure incurred at that time, and

When investment expenditure is incurred

7

(1) In determining for the purposes of this Act when a company has incurred investment expenditure—

(a) ... section 5 of CAA 2001 (when capital expenditure is incurred) applies as it applies for the purposes of that Act, and

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) Any investment expenditure which is (or is treated as) incurred before 26 May 2022 or after 31 March 2030 is to be left out of account in determining a company’s levy profits or loss for any qualifying accounting period.

Financing and decommissioning costs

Meaning of “financing costs” etc

8

(1) This section applies for the purposes of this Act.

(2) “Financing costs” means the costs of debt finance.

(3) In calculating the costs of debt finance for an accounting period of a company the matters to be taken into account include—

(a) any costs giving rise to debits in respect of debtor relationships of the company under Part 5 of CTA 2009 (loan relationships), other than debits in respect of exchange losses from such relationships,

(b) any exchange gain or loss from a debtor relationship of the company in relation to debt finance,

(c) any credit or debit falling to be brought into account in accordance with Part 7 of CTA 2009 (derivative contracts) in relation to debt finance,

(d) the financing cost implicit in a payment under a finance lease,

(e) if the company is the lessee under a right-of-use lease which is a long funding finance lease, any costs falling, in accordance with generally accepted accounting practice, to be treated in the accounts of the company as interest expenses,

(f) if the company is the lessee under a long funding operating lease, the amount deductible in respect of payments under the lease in calculating the profits of the lessee for corporation tax purposes (after first making against any such amount any reductions falling to be made as a result of section 379 of CTA 2010 (lessee under long funding operating lease)), and

(g) any other costs arising from what would be considered in accordance with generally accepted accounting practice to be a financing transaction.

(4) If an amount representing the whole or part of a payment falling to be made by a company—

(a) falls (or would fall) to be treated as a finance charge, or an interest expense, under a finance lease for the purposes of accounts which relate to that company and one or more other companies and are prepared in accordance with generally accepted accounting practice, but

(b) is not so treated in the accounts of the company,

the amount is to be treated as a financing cost within subsection (3)(d).

(5) If—

(a) in calculating the qualifying levy profits or loss of a company for an accounting period, an amount falls to be left out of account as a result of subsection (3)(d), but

(b) the whole or any part of that amount is repaid,

the repayment is also to be left out of account in calculating the qualifying levy profits or loss of the company for any qualifying accounting period.

(6) In this section “finance lease” means a lease which—

(a) under generally accepted accounting practice—

(i) falls (or would fall) to be treated, in the accounts of the lessee or a person connected with the lessee, as a finance lease or loan, or

(ii) is comprised in arrangements which fall (or would fall) to be so treated, or

(b) if the lease is a right-of-use lease—

(i) would fall to be treated in those accounts as a finance lease, or

(ii) is comprised in arrangements which would fall to be so treated,

were the lessee or person connected with the lessee required under generally accepted accounting practice to determine whether the lease falls, or arrangements fall, to be so treated.

(7) For the purposes of applying subsection (6)(b), the lessee and any person connected with the lessee are to be treated as being companies which are incorporated in a part of the United Kingdom.

(8) In this section—

“accounts”, in relation to a company, includes accounts which—relate to two or more companies of which that company is one, andare drawn up in accordance with generally accepted accounting practice,

“debtor relationship” has the meaning given by section 302(6) of CTA 2009,

“exchange gains” and “exchange losses” are to be read in accordance with section 475 of CTA 2009,

“lease” means any arrangements which provide for an asset to be leased or otherwise made available by a person to another person (“the lessee”), and

“long funding finance lease”, “long funding operating lease” and “right-of-use lease” have the meanings given in Part 2 of CAA 2001 (see section 70YI(1) of that Act).

Meaning of “decommissioning costs”

9

(1) This section applies for the purposes of this Act.

(2) “Decommissioning costs” means any expenditure which—

(a) is decommissioning expenditure or site restoration expenditure, and

(b) qualifies for a capital allowance.

(3) In this section “decommissioning expenditure” means expenditure incurred in connection with—

(a) demolishing plant or machinery,

(b) preserving plant or machinery pending its reuse or demolition,

(d) arranging for the reuse of plant or machinery,

and the expression “plant or machinery” has the same meaning here as it has in Part 2 of CAA 2001.

(4) In determining whether expenditure is incurred on preserving plant or machinery pending its reuse or demolition, it does not matter whether the plant or machinery is reused, is demolished or is partly reused and partly demolished.

(5) In determining whether expenditure is incurred on preparing plant or machinery for reuse, or on arranging for the reuse of plant or machinery, it does not matter whether the plant or machinery is in fact reused.

(6) In this section “site restoration expenditure” means expenditure which is incurred on the restoration of—

(a) the site of a source to the working of which the ring fence trade concerned relates (or related), or

(b) land used in connection with working such a source.

(7) For this purpose “restoration” includes the matters set out in section 416ZA(7) of CAA 2001.

Qualifying levy losses

Relief for qualifying levy losses

10

Schedule 1 makes provision about relief for qualifying levy losses.

Management and administration etc

Application of corporation tax provisions

11

(1) The provisions of section 1(1) relating to the charging of a sum as if it were an amount of corporation tax are to be taken as applying all enactments applying generally to corporation tax.

(2) But this is subject to—

(a) the provisions of the Corporation Tax Acts,

(b) any necessary modifications, and

(3) The enactments mentioned in subsection (1) include—

(a) those relating to returns of information and the supply of accounts, statements and reports,

(b) those relating to the assessing, collecting and receiving of corporation tax,

(d) those concerning administration, penalties, interest on unpaid tax and priority of tax in cases of insolvency under the law of any part of the United Kingdom.

(4) Accordingly—

(a) TMA 1970 is to have effect as if any reference to corporation tax included a sum chargeable on a company under section 1(1) as if it were an amount of corporation tax, and

(b) the enactments referred to in subsection (3)(a) to (d) apply for the purposes of the levy subject to any modifications necessary to take account of the provision made by Schedule 1 or by any other provision of this Act,

but nothing in this subsection is to be taken to limit subsections (1) to (3).

(5) In the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999 (SI 1999/358) or any further regulations made under section 32 of FA 1998 (unrelieved surplus advance corporation tax)—

(a) references to corporation tax do not include a sum chargeable on a company under section 1(1) as if it were corporation tax, and

(b) references to profits charged to corporation tax do not include qualifying levy profits.

Requirement to provide information about payments

12

(1) This section applies if—

(a) the levy is chargeable on a company (“the chargeable company”) for a qualifying accounting period, and

Reading this document does not replace reading the official text published on legislation.gov.uk. Contains public sector information licensed under the Open Government Licence v3.0. We assume no responsibility for any inaccuracies arising from the conversion of the original CLML XML to this format.