What are financing costs under section 8 of the Energy (Oil and Gas) Profits Levy Act 2022?

Financing costs means the costs of debt finance, including loan relationship debits, exchange gains and losses on debt finance, derivative contract amounts related to debt finance, implicit finance charges in finance lease payments, interest expenses under right-of-use leases qualifying as long funding finance leases, deductible amounts under long funding operating leases, and other costs from financing transactions recognised under generally accepted accounting practice.

How does section 8 treat finance lease charges not reflected in a company's individual accounts?

Where a payment would be treated as a finance charge or interest expense under a finance lease in group or consolidated accounts prepared under generally accepted accounting practice, but is not treated that way in the company's own individual accounts, the amount is still treated as a financing cost for Energy Profits Levy purposes under United Kingdom law.

What happens when excluded financing costs are subsequently repaid under the Energy Profits Levy?

If a financing cost implicit in a finance lease payment has been left out of account when calculating a company's qualifying levy profits or loss, and the whole or part of that amount is subsequently repaid, the repayment must also be left out of account. This ensures symmetrical treatment so the corresponding repayment is excluded too.

How is a finance lease defined for the purposes of section 8 of the Energy (Oil and Gas) Profits Levy Act 2022?

A finance lease is any lease treated as a finance lease or loan under generally accepted accounting practice in the accounts of the lessee or a connected person. For right-of-use leases, the test is whether the lease would be classified as a finance lease if the lessee were required to make that determination, with the lessee and connected persons deemed UK-incorporated companies.

Energy (Oil and Gas) Profits Levy Act 2022 section 8

Meaning of "financing costs" etc

Section 8 defines what counts as "financing costs" for the purposes of the Energy Profits Levy, covering debt finance costs, lease-related finance charges, and other financing transactions recognised under generally accepted accounting practice.

Financing costs means the costs of debt finance, including loan relationship debits, exchange gains and losses on debt finance, and derivative contract amounts related to debt finance
The definition also captures the implicit financing element in finance lease payments, interest expenses under right-of-use leases that are long funding finance leases, and deductible amounts under long funding operating leases
Where a payment is treated as a finance charge or interest expense in group or consolidated accounts but not in the individual company's own accounts, it is still caught as a financing cost — and if such a cost is excluded from the levy profit calculation, any repayment of it is likewise excluded
A finance lease is broadly defined as any lease treated as a finance lease or loan under generally accepted accounting practice, including right-of-use leases, with the lessee and connected persons deemed to be UK-incorporated companies for classification purposes

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