The Treasury has raked in more than £1.7billion in tax from the North Sea operations of oil and gas firms in just 90 days, according to newly published figures.
As Rishi Sunak suddenly now hints that a windfall tax may still be on the table, research by Aberdeen & Grampian Chamber of Commerce has found that offshore operators and licensees have been paying over £19million in tax per day since the turn of the year.
The soaring price of oil and gas, and rising sector profits, have led to repeated calls for a one-off windfall tax to help households with rising fuel bills.
Having previously ruled it out, the Chancellor said this week that the levy is something he would "look at" - despite pressure from his own Cabinet colleagues reduce taxes in light of record Treasure receipts.
Labour has estimated this would raise £1.2billion over the year ahead to provide targeted support to households and businesses.
However, the Chamber's research shows that the Treasury has already banked £1.5billion more
in the first three months of 2022 than it did over the same period in 2021.
One of the world’s leading energy tax experts has suggested that tax revenues from the North Sea could now top £10billion in the year ahead.
What the figures reveal
Between April 2021 and March 2022, offshore companies paid just over £3billion in tax, according to data from the Office for National Statistics (ONS).
This is a 586% increase on the previous 12 months and is the highest level of tax paid by the industry since 2013/14.
Looking at the three months from January to March this year in isolation, the industry paid £1.7billon in tax in just 90 days, up 670% on the same time last year.
The office of Budget Responsibility (OBR) has upgraded its estimates for the fiscal years ending March 2023 to 2027, now predicting North Sea corporation tax to hit £21.4billion, more than double previous forecasts.
Reaction
Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, added: “We have said repeatedly that the windfall tax on North Sea profits is a blunt instrument that will achieve little apart from making the North Sea – already one of the world’s most mature basins – less attractive to investors.
“That would place jobs, tax revenues and our domestic energy security at risk, and also limit ability and appetite to invest in low the low carbon research and development we so desperately need. Perversely, in the longer term, this would likely drive-up energy bills and be entirely counter-productive.
“It is clear from these figures that the Treasury has benefited enormously already from higher energy prices – therefore offering targeted support to consumers and businesses is already within its gift.”
Derek Leith, Global Oil & Gas Tax Leader at EY, said industry sources predict that the North Sea tax yield for 2022/23 may well be more than the £8.1billion forecast and perhaps closer to £10billion.
“If it reached £10billion, then that would be a £7.2billion increase from the 2020 forecast and be sufficient incremental tax revenues to fund the support to consumers that some opposition parties have called for,” he said.
“This endorses the industry view that the current tax regime, with a combined corporate tax rate of 40%, is the appropriate level of taxation for a mature oil and gas province, ensuring that HMT gets a fair share of incremental profits arising from higher commodity prices.
“To tinker with the regime where the past few years have seen such volatile commodity prices is unwise - particularly when the UK is more conscious of energy security and balance of trade issues, and where some of the companies active in the North Sea are making significant investments in the energy transition.”
What makes up UK oil and gas taxation?
Oil and Gas companies pay tax profits from production in UKCS at a rate of 40%, comprising both Ring Fence Corporation Tax plus a Supplementary Charge (RFCT/SC).
Separately, Petroleum Revenue Tax (PRT) is a tax on the profits from oil and gas production in the UK, but only applies to fields that were approved before 16 March 1993. These are known as ‘taxable fields’.
PRT was permanently zero-rated from 1 January 2016. It was not abolished because some companies still require access to their tax history for carrying back trading losses and decommissioning costs.
There has been a lot written in recent months about decommissioning tax reliefs claimed by North Sea firms as the basin matures and assets reach the end of their working life. Decommissioning is a deductible expense for both RFCT/SC and for PRT.