Environmental taxes Climate change levy - what should you know?

At a time when there is an increasing recognition that climate change is happening and that industrial activities are the primary cause, it is not surprising that many countries have implemented fiscal measures to encourage a reduction in the consumption of carbon sourced fuels and to deter activities that over-exploit natural resources or pollute the environment.

When the UK first introduced such measures, they were initially christened ‘stealth taxes’ because many were applied to upstream and wholesale transactions, or became hidden costs within charges for energy, property development costs and waste management charges. The UK’s environmental tax regimes have developed over the years and have become, arguably, more transparent as they have matured, but for many businesses they remain something of a mystery – along with their true impact on costs and the availability of tax relief.

Climate change levy (‘CCL’) is currently the nearest the UK has to a ‘carbon tax’ and almost all supplies of energy to businesses that consume it for industrial or production purposes is subject to the tax. The stated objective of the tax is to increase energy costs by a value that recognises the carbon impact of producing commodities such as electricity, gas and coal and in doing so incentivise energy efficiency. At the time of CCL’s introduction, supplies of electricity generated from renewable sources were exempt from the tax in a worthy effort to encourage business consumers to switch to more environmentally friendly energy sources. But this exemption was withdrawn for energy generated after July 2015 on the basis that renewable energy no longer needed this kind of support, resulting in a broadening of the tax base and more consumers incurring the tax.

However, other reliefs, exclusions and exemptions from CCL remain available where the relevant conditions can be satisfied, and any business or intensive energy user is well advised to explore the impact that CCL has on their energy costs, establish the potential for securing CCL free energy and benefit from the corresponding reduction in energy costs. In particular, we would urge anyone involved in the following activities to review energy costs for CCL purposes:

-        Energy intensive industrial consumers;

-        Entities who generate electricity for themselves or for supply to third parties;

-        Landlords who supply energy to tenants who are intensive industrial consumers;

-        Businesses who use energy commodities otherwise than for its energy characteristics (e.g. electricity used for electrolysis, liquid petroleum gas used as a propellant in aerosols, propane in the production of fertiliser);

-        Consumers in the mineralogical or metallurgical processing sectors (where 100% relief may be available);

As with most indirect taxes, relief is usually available only after it is applied for. While retrospective relief for CCL is possible, it is often difficult to achieve.

CCL is recognised by the governments own Office of Tax Simplification as a complicated tax. Centurion have the expertise and experience to help opportunities and risks arising from this tax. If you would like more information about CCL or any other environmental tax, please contact a member of the team at emailus@centurionvat.com.

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