Windfall taxes on energy companies

Understand the energy profits levy and electricity generator levy.
Worker testing material
Share:

The government has introduced two windfall taxes in the UK: The electricity generator levy (EGL) and energy profits levy (EPL).

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 £77.94/MWh, with an allowance of £10 million per company.

Companies that 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. New projects where the substantive decision to proceed was taken on or after 22 November 2023 are exempt from EGL.

Energy (oil & gas) profits levy

Energy (oil & gas) profits levy is another temporary windfall tax but applies to oil and gas production in the UK and on the UK continental shelf.

It was introduced on 26 May 2022 and concludes on 31 March 2030. 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, except for expenditure on upstream decarbonisation, which is set at 80% to promote the transition towards net zero.

Expert advice on the impact of windfall taxes

S&W’s team of environmental tax experts can help with all aspects of the levies:

  • Understand their consequences
  • See how they impact your business
  • Calculate amounts due
  • Advise on adjustments to your payments on account
  • Keep you updated as legislation changes and develops

If you have any queries about windfall taxes on your energy company and the potential consequences, call our team now.

Get in touch

Frequently asked questions about windfall taxes on energy companies

Renewable electricity is only subject to the levy if it is exported to the grid or a local distribution network. It does not apply to electricity generated and consumed onsite or electricity supplied by private wire.

EGL 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 the levy.

The energy profits levy only applies to the production of gas. If you purchased the gas from somebody else, 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.

Each EU member state is implementing its own windfall tax. Although each tax differs in scope and structure, they follow similar principles. As gas is only produced once, windfall taxes on gas production should only be charged once. Additional windfall taxes may apply to other activities.