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Overview

Environmental tax enables organisations or businesses in the UK to function in an ecologically conducive manner. These schemes and taxes vary for nature of business or organisation and organisation size. An organisation might be eligible for tax relief in certain cases like:

  • The business consumes excess of energy due to the nature of business
  • Not much energy is consumed because an organisation is a small business
  • A business purchases energy-efficient technology for business activities

Businesses/organisations can pay reduced tax by opting for schemes to enable a business to validate that it’s functioning more competently and producing waste which is not very harmful. As part of the UK Industrial plan, it is imperative to encourage organisations and businesses to continue to reduce the carbon footprint.

Climate Change Levy (CCL)

Climate Change Levy (CCL)

CCL is paid at either the carbon price support (CPS) rates or main rates. Main rates encompass gas, electricity, and solid fuels such as coal, coke, lignite, and petroleum coke. Organisations or businesses are liable to pay the main rates of CCL if the business activities are either of the following nature – agricultural, commercial, and industrial or public services. However, a business or organisation does not have to pay CCL’s main rate in case the business uses small amount of energy, or charity involved in non-commercial activities or it is a domestic energy user. In other words, supplies excluded from CCL’s main rates are the ones used for non-business activities by charities or for domestic use. These taxes are collected by HMRC. The following are exempt supplies:

Supplies Notice
by small generating stations (other than combined heat and power (CHPs)) and stand-by generating stations not used as fuel Climate Change Levy 1/3, section 3
for use in some forms of transport Climate Change Levy1/3, section 3
for use in mineralogical and metallurgical processes Climate Change Levy1/3, section 3.14
for use in the production of taxable commodities other than electricity Climate Change Levy1/3, section 3
not for consumption or burning in the UK (exports) Climate Change Levy1/3, section 3
not used as fuel Climate Change Levy1/3, section 3
of electricity from Good Quality CHP stations in some circumstance Climate Change Levy1/3, section 3; and Climate Change Levy1/2
of electricity generated from renewable sources, excluding electricity generated on or after 1 August 2015 Climate Change Levy1/3, section 3; and Climate Change Levy1/4
of taxable commodities other than gas or electricity intended for re-sale Climate Change Levy1/3, section 3
to electricity producers (other than CHP stations, stand-by generating stations, and small generating stations) Climate Change Levy1/3, section 3
to CHP stations subject to restrictions Climate Change Levy1/3, section 3; and Climate Change Levy1/2

Climate Change Levy rates

The main climate change levy rates are charged when energy is supplied to end users, whereas, CPS rates are levied when a taxable supply (for self-use) of fossil fuels is made for usage in electricity generation.

Main rates of CCL

Taxable commodity Rate from 1 April 2017 Rate from 1 April 2018 Rate from 1 April 2019 %Change (2017-2018)
Electricity (£ per kilowatt hour (KWh)) 0.00568 0.00583 0.00847 2.6%
LPG (£ per kilogram (kg)) 0.01272 0.01304 0.02175 2.5%
Natural gas (£ per KWh) 0.00198 0.00203 0.00339 2.5%
Any other taxable commodity (£ per kg) 0.01551 0.01591 0.02653 2.6%

Electricity, gas and solid fuel are usually exempt from CCL’s main rates of CCL if either of the following apply:

  • If electricity, gas and solid fuels are not used in the UK
  • If electricity, gas and solid fuels are supplied to or from certain CHP schemes as per the CHP quality assurance (CHPQA) programme
  • If electricity generated was from renewable sources before 1 August 2015
  • If electricity, gas and solid fuels are used to generate electricity in a generating station which has a volume of 2MW or more
  • If electricity, gas and solid fuels are not going to be used as fuel
  • If electricity, gas and solid fuels are used in certain form of transportation

Percentage discount for holders of a CCA

Taxable commodity Rate from 1 April 2017 Rate from 1 April 2018 Rate from 1 April 2019
Electricity 90% 90% 93%
LPG 65% 65% 78%
Natural gas 65% 65% 78%
Any other taxable commodity 65% 65% 78%

CPS rates of CCL

CPS rate commodity Gas LPG Coal and other solid fossil fuels
Unit £ per kilowatt hour (kWh) £ per kilogram (kg) £ per gigajoule (GJ) on gross calorific value (GCV)
1 April 2016 to 31 March 2019 0.00331 0.05280 1.54790

The carbon price support rates are not applicable in Northern Ireland (NI). The CPS rates lay emphasis on using low carbon technology for producing electricity in the industry. CPS rates are payable for coal, LPG, gas, and other solid fossil fuels. The CPS rates are payable by operators of CHP stations and owners of electricity generating station.

CRC Energy Efficiency Scheme

The CRC Energy Efficiency Scheme, previously referred to as the Carbon Reduction Commitment,is applicable for large, non-energy-intensive businesses or organisations such as all central government departments, banks, hotels, water companies, local authorities (including state-funded schools), and supermarkets.

This scheme was designed to reduce carbon dioxide (CO2) emission and improve energy efficiency in public and private sector organisations that consume high energy. The scheme is administered by the Environment Agency in the UK and regulates the scheme in England. In other areas such as Scotland, Ireland, and wales – The Northern Ireland (NI) Environment Agency, Scottish Environment Protection Agency, and Natural Resources Wales regulate the scheme. However, energy which is previously enclosed under the EU Emissions Trading System and climate change agreements is not covered under CRC.

Certain public bodies, referred to as mandated participants, must take part in the CRC Energy Efficiency Scheme irrespective of the electricity consumed by them. All devolved administrations and UK central government departments qualify as mandated participants. The scheme operates in phases – the initial phase began in April 2010 and ended in March 2014. The second phase began in April 2014 and will run until 31 March 2019. There is a qualification year for each phase and businesses that meet some specific criteria during a qualification year will be eligible to register for the subsequent phase of CRC. In each compliance year, businesses that have registered for CRC needs to abide by the following:

  • gather information regarding its energy supplies
  • prepare and present a report regarding its energy supplies
  • surrender allowances equivalent to its CO2 emissions generated
  • inform the Environment Agency regarding amendments to its organisation that could disturb its registration
  • prepare an evidence pack with all records pertaining to its energy supplies and business activities

Emissions trading

The EU Emissions Trading System (EU ETS) impacts organisations or businesses from energy-driven sectors. The system lets businesses buy and sell greenhouse gas emission allowances to reduce their organisation’s environmental impact. In case, a large organisation is not covered under the EU ETS they are covered under the CRC Energy Efficiency Scheme. If an organisation or business is covered under the EU ETS, it must meet targets by trading emissions allowances and cutting business emissions.

Emissions trading

In order to trade allowances, a business needs to open an EU Registry account. Once the account is active, an organisation can then trade allowances by:

  • bidding at European Union (EU) state auctions or at the UK government
  • purchasing or selling from intermediaries, e.g. specialist traders and banks
  • trading in a straight line with other businesses
  • trading through a broker
  • register with either of the exchanges that list carbon allowance products

Businesses or organisations can compute greenhouse gas emissions by multiplying the amount of energy used by the emissions produced. Businesses need to perform the computation for each type of energy used. To perform the calculations, businesses need to know:

  • the amount of non-renewable energy used –this information is obtainable from the organisation’s’ electricity & water bills, gas, invoices and receipts
  • ‘the emission factor’ which means the greenhouse gases produced by each type of energy – this information is updated every year

Capital allowances on energy-efficient items

Businesses can claim capital allowances when they purchase energy competent, or zero-carbon technology for the business. This enables the business to pay a reduced amount of tax. A business can be eligible for ‘enhanced capital allowances’ for the subsequent water and energy efficient equipment:

  • certain vehicles with low CO2 emissions
  • energy saving equipment
  • gas, biogas and hydrogen refuelling equipment
  • water saving equipment
  • plant and machinery for gas refuelling
  • new zero-emission goods vehicles

Landfill Tax

Businesses are liable to pay tax on top of the normal landfill fees if the organisation or business gets rid of waste using landfill sites. Organisations need to get a permit and register inside 30 days of setting up else could be fined. Here the tax is payable by weight:

Rate Amount payable by business
Lower rate for inactive waste such as rocks or soil £2.65 per tonne
Standard rate £84.40 per tonne

Businesses are not liable to pay Landfill tax for activities such as dredging, quarrying and mining, pet cemeteries and inactive waste used for filling quarries. Additionally, businesses are eligible to get tax credits if they send waste from recycling, reduce to ashes or reused.

Aggregates Levy

This tax is levied on gravel, sand, and rock that’s either been dredged from the sea in UK waters, dug from the ground or imported. Usually, businesses are liable to pay tax of £2 per tonne of gravel, sand, or rock.

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