Energy Profits Levy: Energy Security Investment Mechanism
Published 6 March 2024
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Who is likely to be affected
Oil and gas companies that operate in the UK or on the UK Continental Shelf (UKCS).
General description of the measure
The Energy Profits Levy (EPL) is a temporary 35% levy on profits arising from the upstream production of oil and gas, in addition to the permanent tax regime of Ring Fence Corporation Tax which is charged at 30% and the Supplementary Charge which is charged at 10%.
This measure legislates for the Energy Security Investment Mechanism (ESIM), which will ensure that the EPL ceases if the 6-month average price for both oil and gas is at or below the ESIM threshold prices (71.40 dollars per barrel for oil and 54 pence per therm for gas) prior to the EPL sunset date. These thresholds are based on a 20-year average to the end of 2022. These thresholds will be adjusted from 1 April 2024, and annually thereafter, by the preceding December’s Consumer Prices Index figure.
Policy objective
The ESIM recognises that the EPL was introduced to tax the extraordinary profits of oil and gas companies operating in the UK and on the UKCS, and that if prices return to historically normal levels, it is appropriate that there is a mechanism to ensure that the levy is no longer charged.
This measure is being introduced to give the oil and gas sector and its investors more confidence in the fiscal regime while the EPL remains in place, giving operators and lenders reassurance that if prices return to normal levels prior to the final day of the EPL, the EPL will cease. This will help support current and future investments which are vital to supporting energy security by reducing the UK’s reliance on imported oil and gas during the transition to Net Zero.
Background to the measure
The EPL was introduced from 26 May 2022 to tax the profits of oil and gas companies operating in the UK and on the UKCS. This recognised that profit levels in the sector had increased significantly due to very high oil and gas prices caused by global circumstances.
On 9 June 2023, the government announced the ESIM and laid a Written Ministerial Statement confirming this on 12 June 2023. On 18 July 2023 the government published a discussion document that sought views on the technical detail and practical application of the ESIM.
At Autumn Statement 2023, the government published a Technical Note and Summary of Responses document.
Detailed proposal
Operative date
This measure will take effect following Royal Assent to Spring Finance Bill 2024.
Current law
The EPL was introduced by The Energy (Oil and Gas) Profits Levy Act 2022 with effect from 26 May 2022.
Section 1(3)(b) sets out the final day of the EPL.
Proposed revisions
In Spring Finance Bill 2024, the government will introduce a new section 17A and 17B in The Energy (Oil and Gas) Profits Levy Act 2022 to provide for this measure and to impose a duty on HM Treasury to end the EPL if the ESIM is triggered.
The details of the application of the ESIM will be included in Regulations.
Summary of impacts
Exchequer impact (£million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact based on Spring Budget 2024 forecasts.
Economic impact
This measure is not expected to have significant macroeconomic impact.
Impact on individuals, households and families
There is no indirect or direct impact on individuals as this measure only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will have a negligible administrative impact on up to around 200 companies operating in the UK or on the UK Continental Shelf. One-off costs will include familiarisation with these changes. There is not expected to be any continuing costs.
Customer experience is expected to remain broadly the same following these changes to the EPL as it does not alter how businesses would interact with HMRC.
This measure is not expected to impact on civil society organisations.
Operational impact (£million) (HMRC or other)
HMRC’s operational changes for this measure are negligible.
Other impacts
Environmental impacts have been considered. While no substantive impact on territorial UK oil and gas consumption is anticipated, the government does expect this measure to help maintain the level of investment companies make in relation to upstream oil and gas projects in the UK. Whether there are wider carbon impacts will depend on the nature of investment decisions taken by the companies. Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
The government will monitor oil and gas prices to ascertain if the conditions in the ESIM have been met.
Further advice
If you have any questions about this change, contact the Oil and gas policy team at oilandgaspolicy@hmrc.gov.uk.