This article is from the source 'bbc' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.bbc.co.uk/news/business-60295177

The article has changed 36 times. There is an RSS feed of changes available.

Version 12 Version 13
Energy prices: How will the £5bn windfall tax work? Energy prices: How will the £5bn windfall tax work?
(7 days later)
BP has reported record quarterly profits as it reaps the benefits of higher oil and gas prices, along with rival Shell, months after the UK government introduced a windfall tax on energy firms.BP has reported record quarterly profits as it reaps the benefits of higher oil and gas prices, along with rival Shell, months after the UK government introduced a windfall tax on energy firms.
However, the new tax only came in on 26 May - so the majority of BP's profits won't be hit by it.However, the new tax only came in on 26 May - so the majority of BP's profits won't be hit by it.
How high could my energy bills go?How high could my energy bills go?
Shell profits nearly triple as oil prices surgeShell profits nearly triple as oil prices surge
What is a windfall tax?What is a windfall tax?
A windfall tax is a one-off tax imposed by a government on a company.A windfall tax is a one-off tax imposed by a government on a company.
The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.
Energy firms are getting much more money for their oil and gas than they were last year, partly because demand has increased as the world emerges from the pandemic, but more recently because of supply concerns due to Russia's invasion of Ukraine.Energy firms are getting much more money for their oil and gas than they were last year, partly because demand has increased as the world emerges from the pandemic, but more recently because of supply concerns due to Russia's invasion of Ukraine.
Which countries are doing the most to tackle energy bills?Which countries are doing the most to tackle energy bills?
How will the new windfall tax work?How will the new windfall tax work?
Former Chancellor Rishi Sunak, who is now in the running to be the next prime minister, described the tax as a 25% Energy Profits Levy. The Treasury expects it to raise about £5bn in its first year. Former Chancellor Rishi Sunak, who is now in the running to be the next prime minister, described the tax as a 25% Energy Profits Levy.
The important feature of this extra tax is that any money the companies may have lost in previous years, or money they are spending on things like decommissioning North Sea oil platforms cannot be used to reduce the amount of tax they pay. It will apply to profits made by companies from extracting UK oil and gas. The Treasury expects it to raise about £5bn in its first year.
In recent years, such methods have meant that BP and Shell, for example, have paid almost no tax in the UK. When Sunak announced the Energy Profits Levy in May, it included an Investment Allowance which made energy companies eligible for tax savings worth 91p in every £1 on investments in fossil fuel extraction in the UK.
When Sunak announced the Energy Profits Levy in May, it included an Investment Allowance which made energy companies eligible for tax savings worth 91p in every £1 on investments in fossil fuel extraction in the UK. When the BBC asked the Treasury how much the tax break would cost it received no reply. When the BBC asked the Treasury how much the tax break would cost it received no reply.
Labour have accused the government of handing money to oil companies that could have been used to support households.Labour have accused the government of handing money to oil companies that could have been used to support households.
How much tax do oil companies pay?How much tax do oil companies pay?
Oil and gas firms operating in the North Sea are taxed differently to other firms.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 pay corporation tax at 19%.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 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).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).
How much have energy firms been making?How much have energy firms been making?
BP reported its biggest quarterly profit for 14 years, making £6.9bn in the three months to June.BP reported its biggest quarterly profit for 14 years, making £6.9bn in the three months to June.
Shell recorded even higher second quarter profits of £9bn.Shell recorded even higher second quarter profits of £9bn.
However, despite the profits, the majority of the April to June takings won't be hit by the government's windfall tax as it only applies from 26 May.However, despite the profits, the majority of the April to June takings won't be hit by the government's windfall tax as it only applies from 26 May.
But both have written off a lot of money as a result of exiting from investments in Russian oil firms following the invasion of Ukraine.But both have written off a lot of money as a result of exiting from investments in Russian oil firms following the invasion of Ukraine.
BP and Shell have both spent billions recently on what are called share buybacks, which is what companies do when they have money they can afford to spend on boosting their share price.BP and Shell have both spent billions recently on what are called share buybacks, which is what companies do when they have money they can afford to spend on boosting their share price.
BP sees biggest profit in 14 years as bills soarBP sees biggest profit in 14 years as bills soar
Would a windfall tax affect investment?Would a windfall tax affect investment?
BP plans to spend a maximum of £18bn on the UK's energy system by the end of 2030.BP plans to spend a maximum of £18bn on the UK's energy system by the end of 2030.
Chief executive Bernard Looney was asked by The Times on 3 May which of BP's planned UK investments would not go ahead if there were a windfall tax.Chief executive Bernard Looney was asked by The Times on 3 May which of BP's planned UK investments would not go ahead if there were a windfall tax.
Mr Looney replied: "There are none that we wouldn't do."Mr Looney replied: "There are none that we wouldn't do."
Shell plans to spend £20bn-£25bn on UK energy over the next 10 years.Shell plans to spend £20bn-£25bn on UK energy over the next 10 years.
What have politicians said?What have politicians said?
The government adopted the windfall tax policy, having previously rejected it. A windfall tax had been championed by Labour, Liberal Democrats and the SNP. The government adopted the windfall tax policy, having previously rejected it. Boris Johnson, the outgoing prime minister, had previously said such a tax would deter investment: "I don't like them. I don't think they are the right way forward. I want those companies to make big, big investments."
Boris Johnson, the outgoing prime minister, had previously said such a tax would deter investment: "I don't like them. I don't think they are the right way forward. I want those companies to make big, big investments."
Meanwhile, Mr Sunak had previously said he was not "naturally attracted" to it, but was "pragmatic" about introducing it.Meanwhile, Mr Sunak had previously said he was not "naturally attracted" to it, but was "pragmatic" about introducing it.
But a new Conservative Party leader, and prime minister, could lead to changes in policy. His leadership rival Liz Truss has said she does not support windfall taxes, calling them "a Labour idea".
Labour, the Liberal Democrats and the SNP have all supported a windfall tax on oil and gas companies.
Labour would extend the tax to help fund its proposed six-month freeze on energy prices. It would apply the tax to profits from January 2022, rather than May and would get rid of the government's tax relief scheme for oil and gas companies.
Five questions about Keir Starmer's energy plan
The Liberal Democrats want the tax back-dated to the last three months of 2021.
Critics of a windfall tax argue that it might affect the money paid out to pensioners by some pension funds - as these funds benefit from energy firms' profits.Critics of a windfall tax argue that it might affect the money paid out to pensioners by some pension funds - as these funds benefit from energy firms' profits.
But it is important not to overstate the impact of this. Pension funds invest across countries and industries, so such a tax is unlikely to make a noticeable difference.But it is important not to overstate the impact of this. Pension funds invest across countries and industries, so such a tax is unlikely to make a noticeable difference.
1997: Gordon Brown announced a windfall tax in his first budget1997: Gordon Brown announced a windfall tax in his first budget
Have we had UK windfall taxes before?Have we had UK windfall taxes before?
The UK's best-known windfall tax was in 1997, when Labour Chancellor Gordon Brown placed the tax on companies formed after the Conservative governments' earlier privatisation of nationalised industries, including BT, Scottish Power and United Utilities.The UK's best-known windfall tax was in 1997, when Labour Chancellor Gordon Brown placed the tax on companies formed after the Conservative governments' earlier privatisation of nationalised industries, including BT, Scottish Power and United Utilities.
The tax raised £5.2bn over two years (£8.7bn in today's money) according to the Institute for Fiscal Studies.The tax raised £5.2bn over two years (£8.7bn in today's money) according to the Institute for Fiscal Studies.
Conservative Chancellor Geoffrey Howe imposed a similar levy on banks in 1981, arguing they had benefited from high interest rates. He also imposed a special tax on North Sea oil and gas firms.Conservative Chancellor Geoffrey Howe imposed a similar levy on banks in 1981, arguing they had benefited from high interest rates. He also imposed a special tax on North Sea oil and gas firms.