How are payments for loss surrender treated under sections 13 and 14 of the Energy (Oil and Gas) Profits Levy Act 2022?

When a claimant company makes a payment to a surrendering company under a qualifying levy loss surrender agreement, the payment is entirely tax-neutral. It is excluded from the calculation of qualifying levy profits or losses for both companies, ignored for corporation tax purposes, and not treated as a distribution.

Is there a limit on the payment a claimant company can make under a loss surrender agreement for the Energy Profits Levy?

Yes, the payment made by the claimant company must not exceed the total amount of qualifying levy losses being surrendered under the agreement. If the payment stays within this limit, it receives the special tax-neutral treatment prescribed by sections 13 and 14 of the Act.

Can a company deduct a payment made under a loss surrender agreement for corporation tax purposes?

No. The payment is excluded from the calculation of profits or losses for general corporation tax purposes. The paying company cannot deduct it as an expense, and the receiving company does not include it as taxable income. The payment is entirely neutral from a corporation tax perspective for both parties.

Is a payment under a qualifying levy loss surrender treated as a distribution under United Kingdom tax law?

No. Sections 13 and 14 of the Energy (Oil and Gas) Profits Levy Act 2022 specifically provide that such a payment is not treated as a distribution. This means it is not classified as a dividend or similar return to shareholders, ensuring complete tax neutrality for both companies involved.

Energy (Oil and Gas) Profits Levy Act 2022 section 13-14

Payments for relief

Sections 13 and 14 deal with the tax treatment of payments made between companies as part of a group relief arrangement for surrendering qualifying levy losses.

Where a claimant company makes a payment to a surrendering company under a loss surrender agreement, that payment receives special tax treatment.
The payment must not exceed the total amount of the qualifying levy losses being surrendered under the agreement.
The payment is ignored when calculating the qualifying levy profits or losses of both the company making the payment and the company receiving it.
The payment is also ignored for corporation tax purposes and is not treated as a distribution for those purposes.

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