What is the windfall tax on oil and gas companies and how much do they pay?

The windfall tax on oil and gas companies has been extended by a year - until March 2029 - Chancellor Jeremy Hunt announced in the Budget.

The Energy Profits Levy, introduced as a response to soaring profits in May 2022, raised £2.6bn in its first year.

A windfall tax is a levy imposed by a government on companies that have benefited from something they were not responsible for - in other words, a windfall.

Energy firm profits soared because of rising demand after Covid restrictions were lifted, and then because Russia's invasion of Ukraine raised energy prices.

The windfall tax applies to profits made from extracting UK oil and gas.

BP made $13.8bn (£11bn) in 2023, down from the record $27.7bn in 2022.

Shell profits were $28.2bn (£22.3bn) in 2023, down from $39.9bn in 2022 - the highest earnings in its 115-year history.

BP says its UK businesses account for less than 10% of global profits, while Shell makes about 5% of its revenue in the UK.

British Gas profits for 2023 increased 10-fold to £750m.

Prime Minister Rishi Sunak introduced the 25% Energy Profits Levy (EPL) in May 2022, when he was chancellor.

Mr Hunt increased the windfall tax to 35% in January 2023.

And in the 2024 Budget he announced it would remain in place until March 2029 - because, he said, the continuing war in Ukraine would extend windfall profits for energy companies.

The government has said the windfall tax will end if oil and gas prices drop below a certain level for six months.

For that to happen, average oil prices must fall to, or be below, $71.40 per barrel, and £0.54 per therm for gas, for two consecutive quarters.

In 2022, the government also brought in a levy on what it called "extraordinary returns" from low-carbon electricity generators in the UK.

Larger operators started paying the Electricity Generator Levy on 1 January 2023. The government hopes it will raise about £14bn over six years.

In the first tax year the windfall tax was in place 2022-2023, HMRC received £2.6bn from it. It had been forecast to bring in £5bn in the first year.

BP said its North Sea business paid $1.5bn (£1.2bn) UK tax in 2023, of which $720m was due to the EPL.

The year before, it paid $2.2bn in tax for its North Sea operations, including $700m from the EPL.

Shell said it paid £178m in UK windfall tax for 2022. A company spokeswoman said the company paid £1.1bn in overall tax in the UK for 2023, of which £240m was taxed under the Energy Profits Levy.

Oil and gas firms operating in the North Sea are taxed differently.

They pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other firms with profits over £250,000 a year currently pay 25% corporation tax.

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.

As a result BP and Shell have paid almost no UK tax in recent years.

Both firms received more money back from the UK government than they paid every year from 2015 to 2020 (except Shell in 2017).

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

In January 2023, Shell announced that it would pay UK tax for the first time since 2017.

BP paid more money in tax than it received back in 2021, taking its total for the same period to -£107m.

Companies are offered big tax benefits if they invest in oil and gas extraction. For every £100 they invest they can claim back £91.40 in tax relief.

And if they spend £100 decarbonising the way they extract oil and gas they can claim up to £109.25 in tax benefits.

But Gilad Myerson from Ithaca Energy, a company developing the Rosebank oilfield, told BBC News "we have slowed down our investment programme quite significantly because of the instability" caused by the windfall tax.

The £3.1bn investment in Rosebank will qualify the companies involved for up to £2.9bn in tax relief.

In November 2022, Shell said it would "have to evaluate each project on a case-by-case basis", having previously planned to invest up to £25bn over the next decade.

BP plans to spend up to £18bn on the UK's energy system by 2030 and said in May 2022 that all planned UK investments would continue.