RE: What is the windfall tax on oil and gas companies?7 Dec 2022 22:32
How much will companies pay under the levy?
Shell has said it is not expecting to pay any of the windfall tax at all this year, as its investments in the North Sea meant it did not count as having made any UK profits.
It does expect to pay some in 2023.
BP said it would pay $800m (£678m) in windfall tax this year.
However, we don't know exactly how much profit these companies are making from extracting oil and gas in the UK.
How much tax do oil companies usually pay?
Oil and gas firms operating in the North Sea are taxed differently to other firms.
Taxes on their profits are higher - they pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other firms currently pay corporation tax at 19%.
But oil and gas firms have been able to reduce the amount of tax they pay by factoring in losses or spending on things like decommissioning North Sea oil platforms.
In recent years, such methods have meant that BP and Shell, for example, have paid almost no tax in the UK.
BP and Shell both received more money back from the UK government than they paid every year from 2015 to 2020 (except 2017, when Shell paid more than it received).
Shell also paid a negative amount of tax in 2021, taking its total since 2015 to -£685m of tax in the UK.
BP paid more money in tax than it received back in 2021, taking its total since 2015 to -£107m.
Will the windfall tax affect investment in oil and gas?
Shell said earlier in the year that it plans to spend between £20bn and £25bn on UK energy over the next 10 years.
But on 21 November, Shell's UK boss David Bunch told the Confederation of British Industry conference the company would now "have to evaluate each project on a case by case basis" because the windfall tax would mean it had "less to invest".
BP plans to spend a maximum of £18bn on the UK's energy system by the end of 2030.
In May 2022, BP chief executive Bernard Looney told the Times newspaper that all of the company's planned UK investments would carry on regardless of any windfall tax.
In July, its UK boss Louise Kingham told a committee of MPs that the company had initially been concerned about the windfall tax being a "multi-year proposal" but that the news that it would be ending in December 2025 had been "helpful".
BP has not commented publicly since it was announced that the tax would be extended until 2028.
TotalEnergies announced on 2 December that it would be cutting its planned investment in the North Sea by a quarter, or £100m, in 2023 as a result of the extension to the windfall tax.
The French oil company is calling for there to be a mechanism by which the windfall tax would be reviewed if oil and gas prices fall below a certain level before 2028.