Taxation

• Ring Fence Corporation Tax (30%)
• Supplementary Charge (10%)
• Energy Profits Levy (38%)
• Petroleum Revenue Tax (0%)

Ring Fence Corporation Tax (RFCT)

This is generally calculated in the same way as the standard corporation tax applicable to all companies but with the addition of a “ring fence” and the availability of 100% first year allowances for virtually all capital expenditure (which is broadly equivalent to “full expensing” for non-oil and gas businesses). The ring fence prevents taxable profits from oil and gas extraction in the UK and UKCS being reduced by losses from other activities or by excessive interest payments. The current main rate of tax on ring fence profits, which is set separately from the rate of mainstream corporation tax, is 30%.

Supplementary Charge (SC)

This is an additional charge on a company’s ring fence profits (but with no deduction for finance costs). The current rate is 10%. The charge to supplementary charge may be reduced to zero on a slice of production income by the investment allowance (at a rate of 62.5% of investment expenditure), cluster area allowance (62.5% of investment expenditure) or onshore allowance (75% of capital expenditure).

Energy Profits Levy (EPL)

The EPL, officially the Energy (Oil and Gas) Profits Levy, was introduced on 26 May 2022. It is an additional, temporary charge on a company’s ring fence profits (but with no deduction for finance or decommissioning costs and with no allowance for losses generated prior to its introduction). The rate is currently 38%; it was 25% until 31 December 2022 and 35% from then until 31 October 2024. Until 31 October 2024, the charge to the EPL was reduced by an investment allowance (IA). The IA was at a rate of 80% until 31 December 2022 and 29% from then until 31 October 2024. There is still an investment allowance for expenditure on upstream decarbonisation. Until 31 October 2024, investment in the decarbonisation of oil and gas production benefited from the allowance at a rate of 80%; since 1 November 2024, to compensate for the higher rate of EPL, the rate of the decarbonisation allowance has been 66%.

The EPL was originally due to end on 31 December 2025 but was extended until 31 March 2028 in November 2022 and to 31 March 2030 in November 2024. The end date of the EPL is now subject to an Energy Security Investment Mechanism (ESIM), under which the EPL could end early. The ESIM is designed to give operators and their investors confidence the EPL will permanently cease if prices fall consistently to, or below, historically normal levels for a sustained period. Under the ESIM, the EPL will end before 31 March 2030 if the 6-month average prices for oil and gas are both at or below the ESIM threshold prices.

The original ESIM threshold prices were $71.40 per barrel for oil and 54 pence per therm for gas. These thresholds were based on 20-year averages to the end of 2022. The thresholds were adjusted from 1 April in 2024, 2025 and 2026 – and will be adjusted annually in future – by the preceding December’s year-on-year percentage change in the Consumer Prices Index. The original and current thresholds are as set out below.

Following consultation and discussions with industry started in 2024 on a successor regime to the EPL, an outline of a new mechanism for responding to price shocks was  published alongside the Autumn Statement in November 2025. Further discussions with industry led to a number of changes to the original proposals with draft legislation being published by HMRC on 13 July 2026. The new tax is to be known as the Oil and Gas Revenue Levy.

Petroleum Revenue Tax (PRT)

This is a field-based tax charged on profits arising from oil and gas production from individual oil fields which were given development consent before 16 March 1993. The rate of PRT has been permanently set to 0% but it has not been abolished so losses (for example incurred as a result of decommissioning PRT-liable fields) can be carried back against past PRT payments which may result in a repayment of PRT previously paid. PRT was deductible as an expense in computing profits chargeable to RFCT and SC; refunds of PRT are chargeable to RFCT and SC and, to the extent that they do not relate to decommissioning losses, to the EPL.

Marginal tax rate

The current marginal tax rate on income from UK and UKCS oil and gas extraction is 78%. The current marginal rate of mainstream corporation tax is 25%.

Ring Fence Expenditure Supplement (RFES)

The RFES assists companies that do not yet have sufficient taxable income for ring fence corporation tax purposes against which fully to set their exploration, appraisal and development costs. The RFES currently increases the value of RFCT/SC losses carried forward from one accounting period to the next by a compound 10% a year for a maximum of 10 years, not necessarily consecutively.

Former elements of the regime

Brief details of former elements of the regime are given in the footnotes to the table of Historical Government Revenues from UK Oil and Gas Production at Government revenues from UK oil and gas production.

Further information on upstream taxation

This page provides a high-level overview of the UK’s upstream fiscal regime. More detailed information on the regime is available from HM Revenue & Customs.

The NSTA contact for further information is:

Mike Earp
50 Broadway
London
England
SW1H 0DB

Email: mike.earp@nstauthority.co.uk

Tel: 0300 067 1604 / 07785 692644