Autumn Statement 2022: Businesses in the energy sector contribute more

From 1 January 2023, the Energy Profits Levy (EPL) rate will rise by 10% to 35%. The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure), broadly maintaining its existing cash value. Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%. The levy will end on 31 March 2028. With these changes, the EPL is expected to raise over £40 billion in total over the next 6 years.

Environmental Taxes 1920X1080 Nov 22
Jayne Harrold
Published: 17 Nov 2022 Updated: 17 Nov 2022

The Government will legislate for these measures in the Autumn Finance Bill 2022, except the changes related to decarbonisation expenditure which will be legislated for in Spring Finance Bill 2023.

Continuing with the theme of taxing those who have obviously made a windfall, a new electricity generator levy replaces the cost plus revenue limit announced in October and will apply at 45% on extraordinary returns.  This is defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh.  The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million. The tax will apply to extraordinary returns arising from 1 January 2023 and will be legislated for in Spring Finance Bill 2023. It will end on 31 March 2028.   

In-scope generation will be electricity from nuclear, renewable and biomass sources.  It will not apply to gas generation, pumped storage hydroelectricity, battery storage, coal and oil.

The technical note setting out the Electricity Generator Levy in detail was published alongside the Autumn Statement and can be found here.  Businesses within the scope of the levy can contact HM Treasury at electricitygeneratorlevy@hmtreasury.gov.uk to respond to the consultation.

The introduction of a new windfall tax on low carbon electricity generation will apply to many businesses outside of the oil and gas sector which are not within ring fence corporation tax, and so will be dealing with a windfall tax for the first time. The application will be wide, with affected sectors likely to include waste, water and some manufacturing companies who export renewable energy to the national grid as well as traditional renewable/nuclear electricity generators.  Businesses in these sectors are likely to need advice on how this change will impact them in order that they can forecast and plan effectively.

With the increase in take up of electric vehicles, incentives are being reduced to ensure that all road users pay a fair contribution:

  • Vehicle excise duty on electric vehicles will be charged in the same way as petrol and diesel vehicles from April 2025, including removal of the exemption from the expensive car supplement, which applies to cars with a list price exceeding £40,000; and
  • Company car tax rates are being increased for electric and ultra-low emission cars. Increases of 1% per year are being published to provide long term certainty and balance the continued incentivisation of the take up of electric vehicles

This was justified as a reflection of the success of the transition to electric vehicles, but there is a risk that increasing the cost of running electric vehicles could impact the rate of transition.

Autumn Statement 2022

Analysis and commentary from the experts at Evelyn Partners, identifying the key tax changes and outlining the practical implications for you and your business.