What does section 6 of the Energy (Oil and Gas) Profits Levy Act 2022 do?

Section 6 is an anti-recycling rule that prevents companies from claiming investment expenditure relief under the Energy Profits Levy when they acquire assets on which previous spending has already been taken into account, or could have been taken into account, for levy purposes — whether by the same or a different company.

What types of previous expenditure are caught by the anti-recycling rule in section 6?

The rule catches a broad range of previous expenditure including costs of acquiring, leasing, bringing into existence or enhancing the value of the asset. It applies regardless of whether the earlier spending was incurred by the company now acquiring the asset or by a completely different company altogether.

How does the applicable assumption work in section 6 of the Energy Profits Levy Act?

The applicable assumption treats the Energy Profits Levy as having been fully in force at the time any earlier expenditure was incurred. This means expenditure predating the levy is still caught; if it would have qualified for relief had the levy existed at that time, current acquisition costs on the same asset are blocked.

Does the section 6 anti-recycling rule apply to oil field interests?

Yes. Section 6 explicitly covers acquisition of interests in oil fields, meaning whole or partial equity in a field. It also applies to assets acquired in connection with a transfer of an oil field interest, even if the asset and field interest are transferred at different times. However, the rule is not limited to oil field assets.

Energy (Oil and Gas) Profits Levy Act 2022 section 6

Recycling etc of assets to generate relief

Section 6 prevents companies from claiming investment expenditure relief under the Energy Profits Levy when they acquire assets that have already been used to generate such relief, either by themselves or by another company.

Expenditure on acquiring an asset does not qualify as investment expenditure if previous spending on that asset (by the same or another company) has already been, or could have been, taken into account for levy purposes.
Previous spending includes acquiring, leasing, creating or enhancing the value of the asset — covering a wide range of ways a company might have invested in it.
The rule explicitly covers interests (whole or partial equity) in oil fields, including assets acquired in connection with a transfer of an oil field interest, whether or not the acquisition happens at the same time as the transfer.
The "applicable assumption" treats the Act as having been fully in force at the time any earlier expenditure was incurred, so the anti-avoidance rule cannot be sidestepped simply because earlier spending pre-dated the levy.

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