Oil giant Shell is set to pay tax in the Uk for the first time in six years.
The firm, which last paid money to HMRC in 2017, will fork out after making huge global profits last year. The energy firm said it expected to "take a hit" of around $2bn (£1.7bn) on profits in the UK and the European Union in the final three months of the year.
A windfall tax has been imposed on energy companies by governments to try and capture some of the massive profits they have made through high oil and gas prices. The BBC reports that Shell has not disclosed how much UK tax it will finally pay, but that it's understood the figure could be lower than forecast.
The amount of tax shelled out by oil and gas companies in the UK can fluctuate. Investment in areas such as renewable energy, decommissioning of North Sea oil platforms, and losses can reduce the overall bill. Shell's profits hit $9.5bn across its global business between July and September last year.
At the time, the company said it was exempt from paying tax because of large investments in the UK meaning it had not made a profit on British shores. But earlier today, the firm said it expects to pay some tax here for the first time since 2017. The announcement comes after the UK Government increased tax on the profits made from extracting UK oil and gas.
The policy, which is called the Energy Profits Levy and is more commonly referred to as the windfall tax, raised tax to 35% from 25% in November. Shell did not break down how the $2bn hit to its earnings in the final months of 2022 would be split between the UK and the EU.
Oil and gas prices began to rise after the end of Covid lockdowns but surged after Russia's invasion of Ukraine, resulting in bumper profits for energy companies including the likes of Shell and BP in 2022. Amidst soaring energy bills, the government introduced the windfall tax to help fund a scheme to restrict gas and electricity bills.
Oil and gas firms operating in the North Sea are taxed differently to other companies. They pay 30% corporation tax on their profits as well as a supplementary 10% rate. On top of that, they now pay the windfall tax taking their total tax rate to 75%. However, concerns have been raised over flaws in the policy.
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., resulting in companies such as BP and Shell paying little or no tax in the UK in recent years. The Energy Profits Levy also allows energy companies to apply for tax savings worth 91p of every £1 invested in UK fossil fuel extraction.
There are also fears that tougher taxes could discourage oil and gas companies from investing in UK renewable energy. Offshore Energies UK previously said higher taxes would "undermine" an industry which generates 200,000 jobs. Despite the higher taxes, Shell reported $30bn profit in the first nine months of last year and is on track for bumper annual profits for 2022.
The company said it expects to have paid between $4.3bn and $4.7bn in global taxes over the final three months of 2022. Rival BP said it would pay $800m in windfall tax for 2022. It is due to publish its full results for the 2022 financial year on 2 February. Like the UK, the EU has imposed a windfall tax - 33% on fossil fuel firms' profits and one from rising electricity costs.
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