Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Simpler tax on business energy

Business energy users are set to benefit from a simplified energy tax landscape.

Since winning the General Election in May 2015, the Conservatives have made a concerted effort to simplify the policy and regulatory requirements faced by businesses.
In September 2015, the government consulted on plans to streamline the tax regime for business energy efficiency, believing that this had become overly complex and burdensome for impacted firms.
The consultation’s findings, announced alongside the Budget on 16 March, confirmed the governments’ plans to close the Carbon Reduction Commitment (CRC) energy efficiency scheme, following the 2018/19 compliance year.
The CRC is a mandatory carbon emissions reporting and pricing scheme covering large public and private sector organisations in the UK that use more than 6,000MWh/year of electricity and that have at least one meter settled on the half-hourly electricity market.
The government’s decision means that there will be no requirement on businesses to purchase allowances to cover emissions for energy supplied from April 2019.
In order to recover the lost revenues, the main rates of the CCL will increase from April 2019.  The CCL is a tax on energy delivered to non-domestic users in the UK.  Its aim is to provide an incentive to businesses to increase energy efficiency.
The current rate for electricity under the CCL is 0.554p/kWh, with gas at 0.193p/kWh.  Against a backdrop of falling gas prices, CCL rates are to be rebalanced between these fuel types to ‘incentivise reductions in use of gas’.
The government said it remained committed to ensuring that the most energy intensive industries remained protected from the impacts of the CCL on their international competitiveness, by receiving a discount on the main rates of the CCL in exchange for agreeing to energy efficiency targets.
Consequently the government will increase the CCL discount available to CCA participants from April 2019 so as to ensure they pay no more than RPI increase.
From 1st April 2019, the maximum discount due to a CCA will be:
  • Electricity will increase from 90% to 93% 
  • Natural gas will increase from 65% to 78% 
  • LPG will increase from 65% to 78% 
  • Coal will increase from 65% to 78%
The government has acknowledged there was widespread support for the plans and said it will consult later this year with a view to introducing the framework in April 2019.
The Confederation of British Industry (CBI) said the energy tax reforms were a ‘positive step’ that would focus business efforts on investment rather than compliance.
Accountancy firm PwC said the changes would mean that businesses received all the cost of their energy taxes directly through their bills – significantly easing the administrative burden on them.
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