Draft legislation was published on 20 December 2022. The policy was announced in the Autumn Statement 2022 with the intention of legislating in the Spring Finance Bill 2023. This is a new levy therefore there is no current law, however it will be administered under the existing Corporation Tax system. The levy will apply from 1 January 2023 to the exceptional element of revenue arising from electricity generated by qualifying companies or groups of companies generated in pro-rated periods from that date. It is these exceptional revenues that the Electricity Generator Levy will apply to. Some electricity generators have realised revenues well in excess of normal commercial returns. One effect of the rise in global electricity prices has been that UK generators of electricity have received vastly increased revenues for their supplies because, for structural reasons, the price of electricity is tied to the price of natural gas. On the Chancellor announced a package of targeted measures to help support households and businesses with the rising costs of living, including a cap on the amount charged for electricity. This is driven by global factors, including resurgent demand for energy post coronavirus (COVID-19) and Russia’s invasion of Ukraine and weaponisation of gas supplies. Background to the measureĮuropean and UK wholesale gas prices reached record highs this year. The government announced the Electricity Generator Levy in the Autumn Statement 2022 in response to exceptional revenues being realised in some parts of the electricity market. The levy will be applied to companies or groups generating electricity from nuclear, renewable, biomass, and energy from waste sources. The levy will not apply to electricity generated under a Contract for Difference with the Low Carbon Contracts Company Ltd (LCCC) and will not apply to electricity which has been generated outside of the UK and been imported. The levy will be administered via the Corporation Tax system and paid by the responsible company in a group of companies. The levy will be in effect from 1 January 2023 until 31 March 2028, and will apply to pro-rated profits for accounting periods between those dates. More detail can be found in the updated technical note. The levy will allow for the deduction of a limited set of exceptional costs when calculating generators’ liability. This is often in the form of fuel costs or revenue-sharing agreements with third parties. Some generators within scope of the levy have seen certain costs increase in line with the wholesale price of electricity. The levy will only apply to exceptional receipts exceeding £10 million in an accounting period. The levy will be limited to generators whose in-scope generation output of electricity exceeds 50GWh across a period of a year. Exceptional receipts will be defined as wholesale electricity sold at an average price in excess of £75 per MWh over an accounting period. The Electrical Generator Levy will be a temporary 45% charge on exceptional receipts generated from the production of wholesale electricity. Companies and groups of companies that undertake electricity generation in the UK and are connected to either the National Grid or local distribution networks and equivalent networks in Northern Ireland.
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