The government has also been clear that it wants to see the oil and gas sector reinvest their profits to support the economy, jobs and the UK’s energy security.
To encourage this, a ‘super-deduction’ style investment allowance will be introduced within the levy to provide an immediate incentive for the oil and gas sector to invest in UK extraction.
The new investment allowance rate is 80% and means the total tax relief on investment nearly doubles - for every £1 businesses invest they will overall get a 91p tax saving.
The current 10% Supplementary Charge provides companies with an investment allowance that can only be claimed once income is received from the field subject to the investment (which can take several years).
In contrast, the new 80% Investment Allowance for the Energy Profits Levy will be available to companies at the point of investment, making it both more immediate and more generous.
The government expects the combination of the levy and this investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in their next forecast.