Currently, the oil and gas sector pay a 40% headline rate tax on profits consisting of 30% Ring Fence Corporation Tax and 10% Supplementary Charge.
In recent years, under the existing regime, fewer than 35 groups have made tax payments each year. In 2021, the top 7 groups accounted for around 95% of payments.
The Energy Profits Levy is an additional 25% tax on UK oil and gas profits on top of the existing 40% headline rate of tax, taking the combined rate of tax on profits to 65%.
To appropriately tax the extraordinary profits, companies will not be able to offset previous losses or decommissioning expenditure against profits subject to the levy.
It is expected to raise around £5 billion in its first 12 months.
The tax will take effect from today, 26 May 2022, and will be legislated for via a standalone Bill to be introduced shortly.
In future years, if oil and gas prices return to historically more normal levels, the Government will phase out the Energy Profits Levy, and also the legislation will include a sunset clause, effective at the end of December 2025.