26 April 2021
Tax relief schemes and environmental taxes post-Brexit
The government encourages businesses to operate in an environmentally friendly manner by offering relief schemes and environmental taxes. To find our more about the schemes and opportunities available to you, read our latest article below..
In general, businesses can expect to pay less tax if they can demonstrate that they are operating in a more energy efficient way and are either not producing harmful waste or reducing their production of harmful waste. A business may get reliefs or exemptions from tax if, for example, it invests in energy-efficient technology or it is a small business that uses very little energy.
Climate Change Levy
The Climate Change Levy (CCL) was first introduced in April 2001 and is one of HMRC's environmental taxes which is charged on the energy a business uses. CCL only applies to businesses in the industrial, agricultural, commercial, and public services sectors which will pay either the main rate or the Carbon Price Support (CPS) rate.
The main rate is charged to businesses in the applicable sectors on gas, electricity and solid fuel, for example, coal. Business energy suppliers are responsible for charging the tax, so businesses will cover the CCL charge as part of their energy bill. However, small businesses that use energy below a de minimus level and charities whose activities are non-commercial are not charged CCL.
Domestic energy users are also exempt from CCL. Other exemptions from the main rate exist, which are listed on the HMRC website. One example would be where the energy is being supplied to or from certain combined heat and power schemes which have been registered with the combined heat and power quality assurance programme.
Businesses which have entered into a Climate Change Agreement with the Environment Agency can also get a reduction in the main rates of CCL. The CPS rates of CCL are paid by those operating combined heat and power stations and owners of stations which generate electricity. The CPS rates of the CCL encourage businesses to use low carbon technology for producing electricity.
CRC Energy Efficiency Scheme
Formerly known as the Carbon Reduction Commitment, the CRC Energy Efficiency Scheme covers larger organisations which are not energy intensive, such as supermarkets, local authorities and banks. Eligible businesses should already be registered for the CRC Energy Efficiency Scheme and must report CO2 emissions from electricity and gas used by the business and buy enough allowances to cover the business' annual emissions and subsequently surrender them at the end of the year. Further information on the scheme is available on HMRC's website.
The EU Emissions Trading System
Businesses in energy intensive sectors, such as manufacturers and the energy industry, may be able to buy and sell emission allowances under the EU Emissions Trading System (EU ETS). Businesses are usually part of either the EU ETS or the CRC Energy Efficiency Scheme as described above, since they cover different sectors.
Businesses covered by the EU ETS must meet emissions targets by either cutting their emissions or by trading the emissions allowances with other businesses. The trading of allowances can only take place once a business has opened an EU Registry Account. Allowances can then be traded through a number of avenues such as:
- direct trading with other businesses
- joining an exchange which lists carbon allowance products
- buying and selling through intermediaries, such as specialist traders or banks
- using a broker, or
- bidding at EU member state auctions
Businesses will need to calculate their greenhouse gas emissions as part of the scheme and will therefore need to know how much energy has been used and the emission factor for each type of energy. These are then multiplied. Any business covered by the EU ETS should check with HMRC how the trade of emissions allowances may have changed following Brexit.
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