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Business energy efficiency tax: reform
Practical Law UK Articles 3-627-0659 (Approx. 3 pages)
Business energy efficiency tax: reform
by Norton Rose Fulbright LLP
| Published on 28 Apr 2016 • UK |
The Treasury has published a response to its consultation on reforming the business energy efficiency tax regime.
Summary. The Treasury has published a response to its consultation on reforming the business energy efficiency tax regime (the response).
Background. Under the Carbon Reduction Commitment Energy Efficiency Scheme (the scheme), qualifying organisations are required to report annually to the Environment Agency on the energy supplies which they receive. This information is used to determine how much carbon dioxide a participant has emitted. Participants are required to buy and surrender an allowance for each tonne of carbon dioxide emitted.
The scheme sits alongside other energy efficiency schemes, such as the Energy Savings Opportunity Scheme and the climate change levy (the levy). This had led to criticism that the energy efficiency landscape is overly complex and bureaucratic.
In September 2015, the Treasury and the Department of Energy & Climate Change consulted on reforming the business energy efficiency tax regime (the consultation) (www.practicallaw.com/1-619-6991).
Facts. The response confirms that the government will abolish the scheme, which it has described as a burdensome and bureaucratic tax, with effect from 2019. Respondents to the consultation had generally wanted a system where a single business or organisation faces one energy tax and one reporting scheme.
A significant number of respondents also supported mandatory reporting, with many respondents expressing the view that it delivers better and wider benefits than voluntary reporting and is a key factor in ensuring that organisations make informed investment decisions. However, some respondents raised concerns that mandatory reporting would place a disproportionate burden on small or medium-sized enterprises.
Most respondents were in favour of the government's proposal to implement a single energy efficiency tax, and many were supportive of the scheme being replaced by a new tax based on the levy. Respondents pointed to greater accuracy in collection and a reduced administrative burden as benefits of the move towards a single tax scheme.
The response states that the government will take the following steps:
- Abolish the scheme following the 2018/19 compliance year. Participants will no longer be required to buy allowances from April 2019.
- In order to recover revenue lost from the abolition of the scheme, the government will increase the rates of the levy from April 2019.
- Boost the levy discount available to climate change agreement (CCA) participants from April 2019 (so that they will pay no more than a Retail Prices Index-level increase).
- To take account of the different fuel mix used in electricity generation, the government will adjust levy rates for different types of fuel.
- Consult later in 2016 on a new, streamlined energy and carbon reporting framework, which will be introduced by April 2019.
- Keep the current eligibility criteria for the CCA scheme in place until at least 2023, with a review of the buy-out price for periods 3 and 4 to commence in 2016.
Comment. The precise form that the new energy and carbon reporting framework will take will remain unclear until the government starts its consultation later this year.
Source: HM Treasury, Reforming the business energy efficiency tax landscape: response to consultation, 16 March 2016, www.gov.uk/government/uploads/system/uploads/attachment_data/file/508159/reforming_business_energy_efficiency_tax_response_final.pdf.