From 1 July 2026, the rate of the Electricity Generator Levy (EGL) will increase from 45% to 55%. Electricity generators within scope of the levy should be aware of the increased levy rate and consider the impact on projected profits and cashflow.

This change is separate from the Energy Profits Levy that applies to oil & gas producers and has its own rules, thresholds, and calculation mechanics.

Below, we explain what the EGL is, who it affects, and why the forthcoming increase matters.

What is the Electricity Generator Levy?

The Electricity Generator Levy (EGL) is a temporary tax charge introduced from 1 January 2023 to apply to exceptional profits earned by certain electricity generators as a result of high wholesale electricity prices.

It broadly targets generators producing electricity from renewable or low‑carbon sources where costs did not rise in line with market prices, leading to what the Government considers 'exceptional' returns.

The levy currently applies until 31 March 2028.

Who does the EGL apply to?

The EGL applies to qualifying generating undertakings, generally companies or groups that:

• Generate more than 50,000 megawatt hours (MWh) of electricity per year (or a pro‑rated amount for shorter periods); and

• Operate a relevant generating station at a place in the UK, the territorial sea of the UK, or a renewable energy zone (within the meaning of the Energy Act 2004, s.84(4)) and mainly not from burning oil, coal or natural gas, or from hydropower where the hydrostatic head of the water has been increased by pumping.

Some generating activities and receipts are excluded, including electricity subject to Contracts for Difference and certain new investment projects.

How does the levy work?

The EGL does not apply to all generation receipts. Instead, it is charged on “exceptional generation receipts”, calculated by reference to:

• Total electricity generation and receipts for the period for the generating undertaking;

• A benchmark electricity price per MWh (originally £75/MWh and indexed annually by CPI);

• Allowable operating costs; and

• A £10 million revenue allowance per generating group (pro‑rated amount for shorter periods).

Only receipts above these thresholds are subject to the levy.

What is changing from 1 July 2026?

From 1 July 2026, the levy rate will rise from 45% to 55%.

This increase will apply to exceptional generation receipts arising on or after that date, increasing the effective tax burden on affected generators. The EGL is charged in addition to corporation tax, making the marginal tax rate on in‑scope profits significantly higher.

Why this matters?

For businesses within scope of the EGL, the rate increase may:

• Reduce post‑tax returns from existing generating assets;

• Affect cashflow forecasting and distribution planning;

• Influence decisions around hedging strategies and pricing; and

• Increase the importance of accurately identifying excluded receipts and allowable costs.

With the EGL currently legislated until March 2028, the rate increase makes forward planning increasingly important.

How we can help

Although the detailed calculation of the Electricity Generator Levy (EGL) is highly specialised, the increase in the levy rate to 55% from 1 July 2026 has a number of wider tax, compliance, and commercial implications for affected companies and groups.

At Johnston Carmichael, we support clients in understanding and managing the practical impact of EGL within the wider corporation tax framework, including:

• Helping businesses understand how the EGL fits into the corporation tax compliance process, including return filing, payment timing and interaction with quarterly instalment payments;

• Advising on the governance and internal processes required to support EGL reporting as part of the company tax return, particularly for groups and lead members;

• Supporting finance teams with the integration of EGL into tax provisioning, forecasting and cashflow planning, especially in light of the increased rate;

• Assessing the combined impact of corporation tax and EGL on effective tax rates, distributable reserves, and distribution capacity;

• Advising on group structures and commercial arrangements to ensure they remain appropriate and robust under a higher EGL rate; and

• Working alongside clients’ specialist advisers to help manage HMRC engagement, risk and anti‑avoidance considerations associated with EGL.

If you would like to discuss how the EGL rate increase may affect your business from a wider tax and commercial perspective, please speak to your usual Johnston Carmichael adviser or get in touch with me at john.mcauslin@jcca.co.uk, Ross Barclay at ross.barclay@jcca.co.uk, or Chris Forgan at chris.forgan@jcca.co.uk.