Shell has said it will pay tax in the UK for the first time since 2017 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 final three months the year.

Governments have imposed taxes on energy companies to capture some of the massive profits firms have made through high oil and gas prices.

Shell will not disclose at present how much UK tax it will finally pay.

It is understood the figure could be lower than forecast at this stage.

The amount of tax oil and gas companies pay in the UK can be reduced after factoring in losses, investment in areas such as renewable energy or decommissioning North Sea oil platforms.

Last year, Shell revealed a huge jump in profit, which reached $9.5bn across its global business between July and September.

At the time, Shell said that because it had made large investments in the UK it had not made a profit in the country and was therefore not required to pay taxes.

But on Friday, the company confirmed that it does expect to pay some tax in the UK for the first time since 2017.

It comes after the government increased tax on the profits made from extracting UK oil and gas - a policy called the Energy Profits Levy which is commonly referred to as the windfall tax - from 25% to 35% 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.

With households being hit by soaring energy bills, the government came under pressure to help and introduced a windfall tax on the profits of firms 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, there has been concerns there are 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. It has meant that in recent years, companies such as BP and Shell have paid little or no tax in the UK.

The Energy Profits Levy also has a measure that allows energy companies to apply for tax savings worth 91p of every £1 invested in fossil fuel extraction in the UK.

However there are also fears that introducing tougher taxes on oil and gas companies could put them off investing in UK renewable energy.

Offshore Energies UK has previously said higher taxes would "undermine" an industry which generated jobs for 200,000 people.

Despite having to pay higher taxes, Shell remains on track for bumper annual profits for 2022 after reporting profit of $30bn for the first nine months of last year.

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 on energy companies, with a 33% levy on fossil fuel firms' profits and also one on the revenues made from rising electricity costs.

Source:
courtesy of BBC NEWS

by Michael Race

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