WT - See Ithaca's plans - to totally smash it down.1 Jun 2022 10:29
Q&A Q1 results I was curious if you could provide some comments with respect to potential impact of the proposed tax on your operation in the near-term and going forward the additional windfall tax?
David Crawford - And it's in response to the government looking for to collect additional tax as you're aware because of the cost of living increase in the UK. But the levy also incentivizes those who are prepared to invest in developments, which is something I think is prepared to do. The tax provides us as you're probably aware 100% allowance for CapEx, but also an additional 80% uplift in the allowance.
So if I just give you an example, because as you're aware, we can't really provide guidance on specific numbers. But if I take say $1 billion of EBITDAX, which is a rough estimate to profits before tax. If we spend $600 million in CapEx, that is a large against the $1 billion. The additional allowance is 80% of the CapEx. So, that's another $480 million, which comes off the profits before tax. So in total, the CapEx plus the additional allowance comes to a $1.080 billion.
So at not example, if you've got an EBITDAX roughly to a $1 billion dollars and you're spending CapEx of $600 million, there isn't actually any additional tax or any additional profit levy. In that case, you actually have your CapEx and allowance higher than your profits before tax already. I think to realize also in the new levy, while you're not allowed to use past losses, which is the position of Ithaca for the other 40% tax, which the government has at the moment.
So we use that to extinguish the majority of our taxes. And here you can use your past losses, but you can within the period of when the levy is in place, you can carry back and carry you forward allowances, which you used or not allowed. For example, in that situation, if that was in 2023 and our CapEx allowance was higher than the profits before tax that 80 million credit could be carried back to 2022, and that would all set the potential, anything that would potentially be paired in 2022.
So, it is a tax, which we believe Ithaca is in a position because of its high capital program. We will reduce that percentage of 25%, quite far down, depending on the capital profile within the year. The other thing to bear in mind, it it's not law yet, so it still has to be approved. So it is proposed. So, we believe it's the end of June or July before it actually comes in enforce. But hopefully that gives you a guidance anywhere that with a company like Ithaca, who is spending a lot of money on developments that we will be able to all offset that CapEx against this new level.
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