TAX - 01.06.2006

Climate Change Levy

Polluter pays

The Climate Change Levy (CCL) was introduced in April 2001 in an effort to make businesses more energy efficient and reduce greenhouse gas emissions. It’s the UK governments way of conforming with the Kyoto Protocol, which is an international agreement made by governments to reduce carbon dioxide emissions. The money raised is used to finance incentives for UK businesses to be more energy efficient. But in some quarters it’s been described as a “sticking” stealth tax because, unlike VAT, you can’t claim it back.

What does it cost?

The tax is calculated on the number of units of energy your business uses. The charges are currently:

• 0.43p/kWh (pence per kilowatt-hour) for electricity

• 0.15p/kWh for gas

• 1.17p/kilogram for coal; and

• 0.96p/kilogram for LPG.

As an example of power consumption, a standard LaserJet printer on a network uses about 1.1kWh of energy during an eight-hour working day.

Are you exempt?

The easiest way to decide whether or not your business should be exempt is to check whether you pay the “domestic” rate of VAT on your fuel bills. If your business uses less than 1,000 units of electricity or 4,397 units of gas per month, (for more info see later) then you should be paying only 5% VAT. If your business is paying this reduced rate, then it’s also exempt from the Climate Change Levy.

Tip. Check your fuel bills (the CCL should be detailed separately) to make sure you’re not paying the levy when usage is below the exemption limits.

Go green

If you’re not exempt, then this is a very difficult tax to avoid. The simplest way to pay less CCL is actually to reduce the amount of energy you use. Here are just some of the ways you could do this:

Invest in energy-efficient equipment. You can claim 100% of the cost of qualifying equipment such as lighting, boilers or insulation against your profits in the year you buy it. Visit http://www.eca.gov.uk for a full list of the qualifying equipment. There is help for small or medium-sized businesses. You could borrow £5,000 to £100,000 unsecured and interest-free to fund projects such as lighting, boilers or insulation. For further information or to start the application process visit http://www.thecarbontrust.co.uk/energy/pages/page_72.asp or alternatively contact the helpline on 0800 0852005.

Light. Use energy-efficient light bulbs. They may cost a bit more, but they only use about 25% of the energy of a standard bulb and last up to twelve times longer.

Heating. Set the thermostat to 19oC in the winter. Surveys show that for every degree above this, energy costs rise by about 8%. Also, don’t put desks or cupboards in front of radiators, which reduces the amount of heat output and forces the radiator to work harder if it’s on a room thermostat.

For full details on exemptions from the CCL visit http://environment.indicator.co.uk (EN 01.01.02).