OT21760 - Energy Profits Levy: Disqualifying purposes  

EPLA22\S5

Expenditure is not investment expenditure, and therefore will not qualify for the additional expenditure if it has been incurred for disqualifying purposes. A purpose is a disqualifying purpose if the expenditure arises directly or indirectly in connection with, or otherwise in consequence of, any avoidance arrangements (EPLA22\S5(1)).

Arrangements are avoidance arrangements if:

  1. the main purpose, or one of the main purposes, of the arrangements is to secure a relevant EPL advantage, and

  2. it is reasonable, taking account of all the relevant circumstances:

  • to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or
  • to regard the arrangements as circumventing the intended limits relating to the relief under EPLA22\S2(3) or as otherwise exploiting shortcomings in EPLA22.

For this purpose, a relevant EPL advantage includes:

  1. relief or increased relief from the levy,

  2. repayment or increased repayment of the levy,

  3. avoidance or reduction of a charge to the levy or an assessment to the levy,

  4. avoidance of a possible assessment to the levy,

  5. deferral of a payment of the levy or advancement of a repayment of the levy, and

  6. avoidance of an obligation to deduct or account for the levy.

Therefore, to meet the test of disqualifying purposes, it would not be sufficient to solely have a purpose of securing a levy advantage; the expenditure needs to arise directly or indirectly in connection with the arrangements, and the arrangements need to include contrived or uncommercial steps, or the arrangements must circumvent the intended limits of the relief. For example, expenditure which is planned to be incurred in June 2028, that is instead incurred in 2027 won’t be caught provided the expenditure meets the other conditions for qualifying for the allowance.