What is the windfall tax on oil and gas companies?

How much have energy firms been making?

BP made $8.2bn (£7.1bn) worldwide between July and September, which was more than double its profit for the same period last year.

Shell announced worldwide profits of £8.2bn and £9bn for the same periods.

Both companies have increased their dividend payments

And they have been spending billions buying back their own shares from the market, in order to increase their value.

Shell and BP's profits have been boosted by high oil and gas prices, exacerbated by Russia's invasion of Ukraine, although both companies say they have written off a lot of money as a result of exiting from investments in Russian oil firms.

What is a windfall tax?

A windfall tax is a tax imposed by a government on a company.

The idea is to target firms lucky enough to benefit from something they were not responsible for - in other words, a windfall.

Energy firms are getting much more money for their oil and gas than they were last year.

How does the new windfall tax work?

Rishi Sunak introduced the tax when he was chancellor, describing it as a 25% Energy Profits Levy.

It applies to profits made from extracting UK oil and gas, but not from other activities such as refining oil and selling petrol and diesel on forecourts.

BP said it would pay $800m in windfall tax this year

What have politicians said?

Asked if the government should raise the windfall tax on firms, government minister Nadhim Zahawi said energy giants pay "double the corporation tax" of other businesses, as well as the windfall tax.

Ed Miliband, Labour's shadow climate change secretary, said Shell's profits were "further proof" the UK needed a higher windfall tax.

The Liberal Democrats want the tax back-dated to the last three months of 2021.

How much tax do oil companies usually pay?

they pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other firms currently pay corporation tax at 19%.

But oil and gas 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.

BP and Shell both received more money back from the UK government than they paid every year from 2015 to 2020 (except 2017, when Shell paid more than it received).

Shell also paid a negative amount of tax in 2021, taking its total since 2015 to -£685m of tax in the UK.

BP paid more than it received in 2021, taking its total since 2015 to -£107m.

Will the windfall tax affect investment?

BP plans to spend a maximum of £18bn on the UK's energy system by the end of 2030.

Chief executive Bernard Looney was asked by The Times on 3 May which of BP's planned UK investments would not go ahead if there were a windfall tax.

Mr Looney replied: "There are none that we wouldn't do."

Shell plans to spend £20bn-£25bn on UK energy over the next 10 years.

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