How will the new Public Interest Business Protection Tax work?

Can the new tax stop businesses and stakeholders from profiteering from the assets of a failing energy or gas supplier?

At the end of January, the Government introduced a new emergency tax known as the Public Interest Business Protection Tax (PIBPT), intended to stop businesses and stakeholders from profiteering from the assets of a failing – or at risk of failing – energy or gas supplier.

The tax has been introduced in response to the rising numbers of failed energy and gas firms. It is expected to last for one year but could be in place until 2025.

PIBPT will apply when a company or individual – including stakeholders and investors – prevents the assets of their gas or energy supplier or other public interest business from being available, therefore financially benefitting them instead. And in addition, when the unavailability of these assets inevitably result in the supplier going into special measures or creates an increase in business costs for firms already in special measures.

Under the new regulations:

• ‘Public interest’ business refers to businesses which require a gas or electricity supply licence, although other markets and sectors could be included in this regulation in the future.
• The tax is 75% of the asset’s adjusted value (‘adjusted’ being the total asset value reduced by 10%).
• All forms of assets are included in this tax including contractual rights and forward purchase agreements.
• There is a £100m threshold, so only assets with combined value of £100m and over will be subject to PIBPT.

We spoke to accountants and tax specialists to find out more about the PIBPT and what it will entail.

PIBPT will only affect large energy producers with current agreements and forward contracts – not smaller firms 

Rachel Nutt, National Head of Tax and Renewable and Sustainable Energy Sector, Partner MHA Macintyre HudsonThe Public Interest Business Protection Tax is a new tax which has been introduced on profits that could arise where a business undertakes arrangements that realise a valuable asset for its own benefit and that of shareholders and as a result contributes towards the collapse of an energy supply business.

The tax:

• Is set at 75% of adjusted value of realised assets noted above and will only apply to assets which exceed £100m.
• Will affect large energy producers who have current agreements and forward contracts to hedge energy prices at a rate lower than the current inflated market rate.  Such companies may seek to monetise large profits on these contracts by terminating the agreements early.
• May be extended by future regulations to other public interest businesses for which a Special Administration Regime (SAR) is in place.

Next steps: Accountancy firms representing large companies to which PIBPT applies should ensure their client is made aware of the rules. They should be fully advised when the tax may apply, should they be looking to terminate any forward contracts for the supply of gas and oil prematurely.

Verdict: PIBPT will only apply to very large energy companies and will not affect smaller firms. Any businesses PIBPT affects will need to be made aware of the rules.

Accountants should check if any energy sector clients have any plans which may trigger PIBPT

Christy Wilson, Associate at Katten Muchin Rosenman UK LLP

The PIBPT means that investors in public interest companies could face a tax of 75% of the ‘adjusted value’ of the assets of the company.

PIBPT arises where a business undertakes arrangements that realise valuable assets for its own/shareholder benefit, and as a result accelerate the collapse of the public interest business. It applies to persons holding assets for the benefit of a public interest business where the value of the assets exceeds £100 million.

This individual is principally liable for paying the tax, although companies associated with the principal taxpayer will be jointly liable for the tax. The timeframe for making a PIBPT return which is done by self-assessment, is 30 days with tax being payable within 15 days after that.

Next steps: Accountants may need to identify whether any of their clients who are in the energy sector have any business plans that are likely to trigger a charge under PIBPT.

Verdict: Check whether any existing energy sector clients have any business plans which may trigger PIBPT. 

Pension funds plus investors with 5% interest in such companies may also be affected by PIBPT

Indu Melvin, tax manager, Prime Accountants Group

Larger energy firms have benefitted from record profits as a result of an increase in energy prices while consumers are struggling to cope with spiralling energy costs. In response to this situation, the Government has introduced a Public Interest Protection Tax at a rate of 75% (on adjusted asset value) targeting energy companies.

Firms holding assets for the benefit of an energy supply business where those assets exceed £100 million will be affected. This will also include investors with at least a 5% interest in those companies. Pension funds may invest in these sectors and receive dividends from these companies so it may impact pensioners, too.

Next steps: Advise affected clients to review investor shareholdings, together with their connections to check to see how they will be affected if PIBPT is triggered on realisation of assets.

Verdict: Pension funds plus investors with 5% interest in such companies may also be affected by PIBPT

Annie Makoff is a freelance journalist and editor.