The UK Government has introduced two windfall taxes.
Electricity generator levy (EGL)
Electricity generator levy is a temporary windfall tax on UK electricity generation from nuclear, renewable and biomass sources. It started on 1 January 2023 and ends on 31 March 2028. It applies at a rate of 45% on exceptional generation receipts above the benchmark price of £75/MWh, with an allowance of £10 million per company.
Companies who generate less than 50GWh per annum of electricity from in-scope generation assets are excluded from the levy, as is electricity generated under a Contract for Difference.
Energy (oil & gas) profits levy
Energy (oil & gas) profits levy is another temporary windfall tax but applies to the production of oil and gas in the UK and on the UK continental shelf.
It was introduced on 26 May 2022 and concludes on 31 March 2028. Since 1 January 2023, it has been set at a rate of 35% on ring-fence profits and is charged in addition to ring-fence corporation tax and the supplementary charge. There is also a 29% investment allowance, with the exception of expenditure on upstream decarbonisation, which is set at 80% to promote the transition towards net zero.
The impact of windfall taxes
At Evelyn Partners, we have a team of experts who deal with environmental taxes and can help you to:
- Understand the consequences of the new levies
- See how they impact your business
- Calculate amounts due
- Advise you on adjustments to your payments on account
- Keep you updated as legislation changes and develops
Speak to Evelyn Partners
If you have any queries about windfall taxes on your energy company and the potential consequences, call our team now.
Frequently asked questions about windfall taxes on energy companies
Does electricity generator levy apply to businesses with onsite renewable electricity generation?
Renewable electricity is only subject to electricity generator levy if it is exported to grid or a local distribution network. It does not apply to electricity generated and consumed onsite, or electricity supplied by private wire.
Does electricity generator levy apply to companies with a Contract for Difference?
Electricity generator levy does not apply to revenue from the sale of electricity at the agreed strike price under a Contract for Difference with the Low Carbon Contracts Company Ltd, but revenues from electricity sold on merchant terms to the market would be subject to electricity generator levy.
Does Energy (oil & gas) profits levy apply to businesses who sell gas?
Energy (oil & gas) profits levy only applies to the production of gas. If you purchased the gas from somebody else, then the levy does not apply. If you produced the gas, the levy applies to profits within your ring-fenced trade. These are also subject to ring fence corporation tax and the supplementary charge.
Could a business be subject to windfall tax in more than one country?
Each EU member state is implementing its own windfall tax. Although each tax will be different in scope and structure, they all follow similar principles. As gas is only produced once, windfall taxes on the production of gas should only be charged once. Additional windfall taxes may also apply to other activities.