What is investment expenditure under section 2 of the Energy (Oil and Gas) Profits Levy Act 2022?

Investment expenditure is capital expenditure on the de-carbonisation of a company's upstream petroleum production, incurred for oil-related activities. It must not be incurred for disqualifying purposes and must not include financing costs or decommissioning costs. Only genuinely qualifying expenditure attracts the additional relief under the Act.

How does the 66% additional deduction work under section 2?

Where a company incurs qualifying investment expenditure, it is treated as having incurred additional expenditure equal to 66% of that amount in the same accounting period. For example, £10 million of qualifying expenditure generates a further deemed deduction of £6.6 million, reducing the company's levy profits and Energy Profits Levy charge.

How is mixed-purpose expenditure treated under section 2?

Where expenditure is incurred partly for oil-related activities and partly for other purposes, or is partly capital expenditure on de-carbonisation and partly something else, it must be apportioned on a just and reasonable basis. Only the genuinely qualifying portion of the expenditure attracts the additional 66% investment expenditure relief.

What anti-avoidance rules apply to the investment expenditure allowance?

Section 2 must be read alongside section 6 of the Act, which contains anti-avoidance provisions. Section 6 is designed to prevent companies from artificially recycling or transferring assets in order to generate or inflate investment expenditure relief, ensuring the additional 66% deduction is only available for genuine qualifying expenditure.

Energy (Oil and Gas) Profits Levy Act 2022 section 2

Additional expenditure treated as incurred for purposes of section 1

Section 2 defines what counts as "investment expenditure" and provides an additional deduction equal to 66% of that expenditure when calculating a company's levy profits or losses under section 1.

Investment expenditure is capital expenditure on the de-carbonisation of a company's upstream petroleum production, incurred for oil-related activities, that is not for disqualifying purposes and does not include financing or decommissioning costs.
Where a company incurs qualifying investment expenditure in an accounting period, it is treated as having incurred additional expenditure equal to 66% of that investment expenditure, reducing its levy profits accordingly.
Where expenditure is only partly for oil-related activities, or only partly qualifies as capital expenditure on de-carbonisation, it must be apportioned on a just and reasonable basis.
This section must be read alongside section 6, which contains anti-avoidance rules preventing companies from recycling or transferring assets simply to generate additional relief.

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