The UK HMRC published draft legislation and consultation documents on 13 July 2026 introducing a 35% Oil and Gas Revenue Levy on exceptional oil and gas revenues (replacing the Energy Profits Levy Act 2022) and making the foreign permanent establishment exemption mandatory for Corporation Tax, with feedback due by 13 September 2026.
The UK HMRC has published policy papers, draft legislation, and explanatory notes covering two proposed tax measures: the introduction of a new Oil and Gas Revenue Levy to replace the existing Energy Profits Levy, and reforms to the foreign permanent establishment exemption regime.
Oil and gas taxation — Oil and Gas Revenue Levy
This measure is about a new tax on oil and gas companies that will apply in times of high prices.
Documents
Oil and Gas Revenue Levy (OGRL)
Oil and gas on exceptional revenues
This draft legislation for a new Oil and Gas Revenue Levy was published by HM Revenue & Customs on 13 July 2026. The legislation imposes a 35% tax charge on the “exceptional” oil and gas revenues of companies engaged in a ring-fence trade. While this levy is administered similarly to corporation tax, it is strictly non-deductible. Companies are not permitted to deduct the cost of the levy when calculating their profits or losses for corporation tax, income tax, or petroleum revenue tax purposes.
Calculating exceptional revenues
To determine what qualifies as “exceptional” revenue, companies must apply a multi-step formula for each levy period:
- First, calculate total revenues from oil or gas disposals and adjust this figure for any hedging arrangements the company uses to mitigate price fluctuations.
- Next, calculate a baseline of non-exceptional revenue by multiplying the volume of oil or gas disposed of by a set annual reference price. For the financial year ending in 2027, these baseline prices are fixed at USD 90 per barrel for oil and GBP 0.90 per therm for gas. In subsequent years, these prices will be adjusted for inflation using the consumer prices index.
- Finally, subtract the baseline non-exceptional revenue from the total adjusted revenue. Any positive remainder is the “exceptional” revenue subject to the 35% tax.
This new levy is designed to replace the Energy (Oil and Gas) Profits Levy Act 2022, which will be officially repealed. The new rules will come into effect for accounting periods beginning the day after the 2022 Act’s cessation date, which is slated to occur no later than 31 March 2030.
Reform of the foreign permanent establishment exemption
This measure reforms the taxation of foreign permanent establishments, making the elective exemption regime that applies to their profits and losses mandatory for Corporation Tax.
Documents
Corporation Tax — reform of the foreign permanent establishment exemption
The central reform involves transitioning the foreign permanent establishment exemption from a voluntary election to a mandatory requirement for companies. By making this change, the government aims to standardise how profits and losses from overseas branches are handled for tax purposes.
The UK government opened a public consultation on draft legislation for the Finance Bill 2026-27, making the foreign permanent establishment exemption mandatory for Corporation Tax (previously elective). Interested parties can submit feedback via email to foreignpepolicy@hmrc.gov.uk by 13 September 2026.
Earlier, the UK HMRC proposed reforms to the foreign permanent establishment (PE) exemption regime that would make the exemption for foreign PE profits and losses mandatory for most UK companies from accounting periods beginning on or after 1 January 2027. For UK-resident companies engaged in overseas oil and gas exploration and extraction, the changes would take effect from 1 September 2026.
