Notice

Excise Notice CCL1/6: a guide to carbon price floor

Updated 29 September 2023

1. Overview

1.1 Information in this notice

This notice contains information about the carbon price floor (CPF), which was introduced on 1 April 2013. The CPF affects the price of carbon in the UK electricity generation market by taxing the fossil fuels that are used to generate electricity under:

  • the CCL (Climate Change Levy), in the case of gas, solid fossil fuels and liquefied petroleum gas (LPG)
  • fuel duty, in the case of certain oils (notably fuel oil and gas oil)

This notice covers fossil fuels that are liable to CCL which are used in electricity generation. The tax liability under the CPF of oils and bioblends used to generate electricity is set out in Excise Notice 175: motor and heating fuels - relief from Excise Duty: oils used to generate electricity.

1.2 Who should read this notice

This notice is for generators in Great Britain, including Combined Heat and Power (CHP) operators and auto-generators, producing electricity from fossil fuel sources other than oil.

Unless indicated to the contrary, where we say ‘you’ or ‘your’ in this notice we mean the generator, CHP operator, auto-generator, exempt unlicensed electricity supplier or electricity utility, as appropriate. Where we say ‘we’, ‘our’ or ‘us’ we mean HM Revenue and Customs (HMRC).

1.3 The relevant legislation

The CPF on non-oil fossil fuels is achieved by changes to CCL legislation, including the setting up of new CPS rates of CCL.

Legislation
Primary Schedule 6 to Finance Act 2000 (as amended)
Secondary The Climate Change Levy (General) Regulations 2001 (SI 2001/838) as amended by the Climate Change Levy (General) (Amendment) Regulations 2013 (SI 2013/713)

2. General information about the CPF

2.1 What is the CPF

The creation of a CPF covering Great Britain means that businesses using fossil fuels to generate electricity are required to pay CPS rates on those fuels.

2.2 What supplies are liable to CPS rates of CCL

The commodities liable to the CPS rates of CCL are:

  • any gas in a gaseous state that is of a kind supplied by a gas utility
  • any petroleum gas, or other gaseous hydrocarbon, in a liquid state
  • coal and other solid fossil fuels (petroleum coke, lignite, coke and semi-coke of coal or lignite)

These commodities, known as ‘CPS rate commodities’, are liable to the CPS rates of CCL when they become the subject of a deemed supply for use in electricity generation on or after 1 April 2013.

For the definition of a deemed supply for use in electricity generation, read section 3.

Electricity is not a CPS rate commodity and does not become the subject of a deemed supply if used in electricity generation.

The CPS rates of CCL do not apply to offshore (outside the UK’s 12-mile territorial limit) electricity generation.

2.3 What are the CPS rates of CCL

The CPS rates of CCL that apply in Great Britain in the period shown are as follows:

CPS rate commodity Gas Petroleum gas, or other gaseous hydrocarbon, in a liquid state Coal and other solid fossil fuels
Unit £ per kilowatt hour (kWh) £ per kilogram (kg) £ per gigajoule (GJ) on gross calorific value (GCV)
1 April 2015 to 31 March 2016 0.00334 0.05307 1.56860
1 April 2016 to 31 March 2025 0.00331 0.05280 1.54790

2.4 What about oils and bioblends used in electricity generation

Oils and bioblends are not taxable commodities for CCL purposes, and are taxed under the fuel duty regime. There are, however, CPS rates of fuel duty for oils and bioblends used in the generation of electricity. These are applied as a reduction in relief claimed on oil and bioblend used in electricity generation.

If you do not claim any relief on oil and bioblend used in electricity generation, then there’s no requirement to account for the CPS rates of fuel duty.

Rules apply as to when fuel duty relief may be claimed on oil and bioblend used in electricity generation.

This notice does not deal with oils and bioblends used in electricity — that is covered in Excise Notice 175: motor and heating fuels - relief from Excise Duty: oils used to generate electricity.

3. The tax point for the supply of a CPS rate taxable commodity

A tax point (the point at which tax becomes due) is created when a quantity of a CPS rate commodity is brought onto, or arrives at, the site of the generating station or CHP station, on or after 1 April 2013.

For small generating stations or stand-by generators that are not liable to the CPS rates of CCL, read section 6.

The following tax points for CPS rate commodities apply for:

  • gas, it is the point at which the gas passes through the meter at the generating station
  • coal and other solid fossil fuels, and for LPG, it is the point at which delivery takes place at the generating station (through the entrance gate)

At these points the owner of the generating station or operator of the CHP station is deemed to make a taxable self-supply, regardless of whether they own the CPS rate commodity being supplied. We refer to such a supply in this notice as a deemed supply.

We may accept for practical accounting purposes that another point, such as a weighbridge, can substitute for the entrance gate.

Deemed supplies of CPS rate commodities do not represent supplies for VAT purposes.

4. Payers of the CPS rates of CCL

4.1 Owners of generators other than CHPs

In the case of generating stations other than CHPs, you will be liable to pay CPS rates of CCL on the deemed supply if you are the owner of the generating station. This includes auto-generators and exempt unlicensed electricity suppliers.

As the owner of the generating station, you’re liable to register and account for the CPS rates of CCL. This applies regardless of whether or not you take ownership of the CPS rate commodity.

Where CPS rate commodities become liable for the CPS rates of CCL because they’re the subject of a deemed supply for use in the production of electricity, the commercial supply of these commodities is exempt from the main rates of CCL. However, electricity generated from CPS rate commodities that have been the subject of a deemed supply will generally be liable to the main rates of CCL unless other reliefs or exemptions from the levy apply.

Generators who are liable to pay the CPS rates of CCL are not liable to pay the main rates of CCL on their input fuels. Where claiming relief from the main rates of CCL you must complete two forms:

4.2 Operators of CHP stations

In the case of CHP stations registered under the Combined Heat and Power Quality Assurance (CHPQA) Programme, you will be liable to pay CPS rates of CCL on the deemed supply if you’re the operator of the CHP station. The operator of the station is the person who operates a CHP station or who generates or produces electricity in that station.

If a CHP station is not registered under the CHPQA Programme they will be treated as a generator or as an auto-generator (read paragraph 4.1).

Only the proportion of a quantity of a CPS rate commodity that is referable to the production of non-qualifying electricity will be the subject of the deemed supply (read section 9).

As the operator of the CHP, you’re liable to register and account for the CPS rates of CCL. This applies regardless of whether or not you take ownership of the CPS rate commodity.

For schemes that do not meet the power efficiency threshold set under the CHPQA standard during annual operation, the main rates of CCL will also apply on supplies of taxable commodities.

The amount of CCL chargeable is based on the extent to which the power efficiency threshold is not achieved.

If you’re a partially exempt CHP the electricity generated from the deemed supply of CPS rate commodities will continue to be liable to CCL to the extent that this electricity is not good quality. Read Excise Notice CCL1/2: combined heat and power schemes.

5. Reliefs or exemptions that apply in the case of deemed supplies of CPS rate commodities that are used in electricity generation

There are no reliefs or exemptions that apply to the CPS rates of CCL. However, the following do not constitute deemed supplies when brought onto the site of a generating station (including, where appropriate, a CHP station), and are not, therefore, liable to the CPS rates of CCL:

  • CPS rate commodities for use in small generating stations that are not CHP stations or stand-by generators (read section 6.1)
  • CPS rate commodities for use in small CHP stations (read section 6.2)
  • CPS rate commodities for use in stand-by generators (read section 6.3)
  • CPS rate commodities for use in electricity generation in Northern Ireland (read section 6.4)
  • coal slurry for use in electricity generation (read section 7.3)
  • CPS rate commodities used in a CHP station to produce qualifying electricity and non-electrical outputs (read section 9)

In addition, abated CPS rates of CCL apply for deemed supplies of CPS rate commodities used to generate electricity in stations fitted with carbon capture and storage technology (read section 8).

6. Types of generator using CPS rate commodities that are not liable to the CPS rates of CCL

6.1 Small generating stations (other than CHP stations and stand-by generators)

If you’re a generator with a combined generating capacity of less than 2MW, you’re considered to be a small generating station and do not need to register or account for the CPS rates of CCL. This is because there’s no deemed supply when a quantity of a CPS rate commodity is delivered to the site of the generating station. You will be charged the main rates of CCL on these commodities by your supplier, subject to any other reliefs or exemptions from the levy that apply.

When calculating generating capacity for a non-CHP generating station, you must take account of all generators (apart from CHP stations and stand-by generators) that either:

  • you own
  • are owned by any person connected with you (even if the generators burn oil only)

This is regardless of whether the electricity is generated from CPS rate commodities.

6.2 Small generating stations that are CHP stations

If you’re the operator of a CHP station with a generating capacity of 2MW or below, you’re considered to be a small CHP station and do not need to register or account for the CPS rates of CCL, as there’s no deemed supply when a quantity of a CPS rate commodity is delivered to the site of the CHP station.

The generating capacity is specific to each individual CHP scheme registered under the CHPQA Programme. Therefore, when you calculate the capacity for your CHP station, you should not consider any other stations you operate or that are operated by any person connected with you, apart from those that are covered by the same CHP scheme.

For schemes failing the power efficiency threshold set out in the CHPQA standard and the CCL legislation, you will continue to be liable to the main rates of CCL on the non-qualifying element of the fuel you receive from your supplier. If you’re a partially exempt CHP, the electricity generated from the deemed supply of CPS rate commodities will continue to be liable to CCL to the extent that this electricity is not good quality. Read Excise Notice CCL1/2: combined heat and power schemes.

6.3 Stand-by generators

Deliveries of CPS rate commodities for use in stand-by generators do not constitute deemed supplies and are, therefore, not subject to the CPS rates of CCL.

Stand-by generators, for the purposes of CCL, are generators used to provide emergency electricity supplies solely in the event of a failure of a building’s usual electricity supply and used for no other purpose.

Generators that are used for the generation of electricity to supply to, or reduce demand from, the grid do not qualify as stand-by generators.

Running generators for routine testing and maintenance purposes does not disqualify them from being stand-by generators.

6.4 Northern Ireland generators

The CPF does not apply in Northern Ireland. All CPS rate commodities used in electricity generation in Northern Ireland are outside the scope of the CPS rates of CCL (and the CPS rates of fuel duty do not apply on oils or bioblends used in electricity generation there).

This is regardless of whether that electricity is sent to the grid and of whether the electricity is consumed in Northern Ireland.

7. Taxation of solid fossil fuels used in electricity generation

7.1 Calculating the CPS tax due on a quantity of coal or other solid fossil fuel

The CPS rate of CCL due on coal and other solid fossil fuels is established by reference to the calorific content of the fuel which is the subject of the deemed supply. You must calculate the number of gigajoules in the quantity supplied by reference to the total gross calorific value of that quantity.

The calorific content of these solid fossil fuels should usually be measured at the point of delivery to the generating station.

7.2 Estimating gross calorific value of coal

If your normal business practice is to collect data on calorific values on a net rather than a gross basis, the gross calorific value may be calculated from the net calorific value by dividing by 0.95, to represent the typical ratio between gross and net calorific values. If you elect to adopt this approach, we expect this to be applied consistently to all the deemed supplies you make in any 12-month period.

7.3 Adjusting tax due for coal slurry

Where coal slurry is mixed with coal prior to delivery to the generating station and this is evidenced from commercial records, you can adjust the calorific value of the supply so that the coal slurry element does not bear tax. If a deemed supply consists entirely of coal slurry, no CPS rate of CCL is due.

For the purposes of the CPS rates of CCL, coal slurry comprises fine particles of coal and mineral residues recovered from slurry pits (or settlement ponds) at existing or historical coal mine sites. It does not include other low value coal, such as coal from spoil heaps, washed contaminated coal from decommissioned power stations and washings from dust suppression of coal.

Like other CPS rate commodities which are the subject of a deemed supply for use in the production of electricity, the commercial supply of coal slurry for use in electricity generation is exempt from the main rate of CCL on solid fossil fuels. Other uses of coal slurry remain liable for this rate unless other reliefs or exemptions from the levy apply.

8. Supplies of any CPS rate commodity to generating stations fitted with carbon capture and storage technology

Supplies of any CPS rate commodity to generating stations fitted with carbon capture and storage technology are entitled to a proportionate abated CPS rate of CCL to reflect the percentage of carbon dioxide captured. If you are the operator of such a station, or intend to become an operator, you should get in touch using our Climate Change Levy helpline to agree the detail about how the relief will work in practice.

9. Taxation of fuels in CHP stations

9.1 CPS rate commodities used in a CHP station

CHPs registered under the CHPQA Programme with a generating capacity of 2MW or above who use CPS rate commodities as input fuels, are liable to account for the CPS rates of CCL on the proportion of a quantity of a commodity that is the subject of a deemed supply. CPS rate commodities do not form part of the deemed supply when intended for use in producing:

  • heat outputs which can include heat, steam, air and water that have been heated or cooled
  • mechanical power (used for driving fans or pumps for example)
  • qualifying electricity where the CPS rate commodities are brought onto, or arrive at, the station site on or after 1 April 2015

The proportion of the commodity that is the subject of a deemed supply is initially provisional. This is because the status is based upon the current CHPQA certificate. This CHPQA certificate records the actual performance of the CHP station for the previous calendar year. Once the CHPQA certificate for the annual operation covering the CCL return period is received you must review the status of commodities in that return period, and adjust the declared liability accordingly.

9.2 Qualifying electricity

Qualifying electricity is electricity that constitutes part of the Qualifying Power Output (QPO) of a CHP station as defined in the CHPQA standard, which is used on-site.

Electricity is used on-site if it is self-supplied or supplied to a consumer by an exempt unlicensed electricity supplier.

Electricity is self-supplied where the producer makes no supply of it to another person, but causes it to be consumed in the UK. This will include the parasitic load of the CHP station.

A CHP station can be an exempt unlicensed electricity supplier if it qualifies under Class A or Class C of Schedule 4 of The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001.

9.3 Provisionally determining the quantity of a CPS rate commodity used to generate electricity

For CPS rate commodities brought onto, or arriving, at a CHPQA site before 1 April 2015, the proportion of the commodity intended for use in the generation of electricity constitutes a deemed supply.

To establish the deemed supply in the accounting period covered by your CCL return you will need to.

  1. Establish the quantity of input fuel used to generate electricity in the annual operation covered by your current CHPQA certificate

For CHP stations that don’t produce mechanical power, use the following equation.

Q = TFI - (QHO ÷ 0.81)

This is where:

  • TFI = Total Fuel Input taken from the certificate
  • QHO = Qualifying Heat Output taken from the certificate
  • 81% is the reference boiler efficiency

For CHP stations that do produce mechanical power, use the following equation.

Q = (TFI – (QHO ÷ 0.81)) × (1 – (MO ÷TPO))

This is where: 

  • TPO = Total Power Output taken form the certificate
  • MO is the Mechanical Output in megawatt-hours (electrical) generated by the station in a given annual operation to drive a mechanical load (such as a pump, fan or compressor) through direct coupling, without the use of electricity.

You will have provided this within your CHPQA annual self assessment.

2. Calculate the percentage of the fuel input in the annual operation covered by the CHPQA certificate used to generate electricity, by applying the following equation.

(Q ÷ TFI) × 100

3. Apply this percentage to the quantity of each CPS rate commodity brought onto, or arriving at, a CHPQA site before 1 April 2015. This will establish the deemed supply.

9.4 Provisionally determining the quantity of a CPS rate commodity used to generate electricity that is not qualifying electricity

For CPS rate commodities brought onto, or arriving at, a CHPQA site on or after 1 April 2015, only the proportion of the commodity intended for use in the generation of electricity that is not qualifying electricity constitutes a deemed supply.

To establish the deemed supply in the accounting period covered by your CCL return you will need to:

  1. Establish the quantity of input fuel used to generate electricity in the annual operation covered by your current CHPQA certificate. How to do this is explained in paragraph 9.3 at step 1

2. Establish the amount (R) of fuel used in that annual operation to generate electricity that is not qualifying electricity. This is done by applying the following equation.

R = Q × (1 – (ES ÷ (TPO – MO)))

This is where: 

  • TPO = Total Power Output taken from your current CHPQA certificate.
  • ES = the electricity used on-site in the annual operation covered by the certificate.

You will need to be able to demonstrate this from your business records. For the purposes of the above equation this figure can’t be greater than the Qualifying Power Output shown on the certificate

MO is explained in paragraph 9.3

3. Calculate the percentage of fuel in the annual operation covered by the CHPQA certificate used to generate electricity that is not qualifying electricity, by applying the following equation.

(R ÷ TFI) × 100

4. Apply this percentage to the quantity of each CPS rate commodity intended to be used in the station for producing outputs of the station brought onto, or arriving at, the CHPQA site during the accounting period covered by your CCL return. This will establish the deemed supply

9.5 Reviewing the deemed supply in a CHP station

CHPQA certificates record actual performance of CHP stations for the previous calendar year. It’s also possible to assess new/or upgraded stations and certify their expected performance in operation.

On receipt of a new CHPQA certificate and upon confirmation from the Department for Business, Energy and Industrial Strategy (BEIS) that the Secretary of State certificate has been maintained, varied or revoked, you must review the correctness of the deemed supplies over that period.

You must also review the correctness of the deemed supplies upon the submission of a self-assessment form to CHPQA after ceasing to be part of the CHPQA Programme.

When a review identifies a mismatch between the quantities of CPS rate commodities that were the subject of deemed supplies and the quantities that should have been the subject of deemed supplies in a review period, you must take one of the following where the review determines:

  • that the amount of CCL declared at the CPS rates was too little, you must declare and pay the underpaid tax to us by accounting for it on your next CCL return
  • the amount of CCL declared at the CPS rates was too much, you should offset the credit against the total CCL due on your next CCL return

Where the actual quantities of the CPS rate commodities match the amount of CCL paid at the CPS rates, no further action is required.

If you fail to carry out a review of the correctness of the quantity of CPS rate commodities that is referable to the production of electricity in a CHP station, you may be liable to a penalty. Read Excise Notice CCL1/5: penalties and interest.

10. Liability to register for CCL

If you generate electricity in Great Britain from CPS rate commodities that are the subject of a deemed supply you’re liable to account for the CPS rates of CCL and, therefore, you must notify us and register for CCL if you’re not already registered.

If you’re the operator of a CHP station and the only electricity you produce is qualifying electricity, then you’re not making deemed supplies and do not need to remain registered for the purposes of accounting for the CPS rates of CCL. However, upon receipt of a new CHPQA certificate, or the submission of a self-assessment form to CHPQA after ceasing to be part of the CHPQA Programme, you must review the correctness of the deemed supplies over that period, as explained in paragraph 9.5 and re-register if appropriate.

If you generate electricity in Northern Ireland from CPS rate commodities, you’re not liable to account for the CPS rates of CCL and therefore do not need to register for CCL (unless you need to register for CCL as a result of making other supplies that are subject to the main rates of CCL).

The effective date of registration is the date on which you make, or intend to make, your first deemed taxable supply. You must notify us of your requirement to register within 30 days of the effective date.

We can compulsorily register a person where we consider they should be registered for CCL. For further information on registrations, read register for Climate Change Levy . You may be liable to a penalty if you’re required to register for CCL and fail to do so. Read Excise Notice CCL1/5: penalties and interest.

11. Accounting for the CPS rates of CCL

If you use CPS rate commodities to generate electricity you must account to us for the CPS rates of CCL if you:

  • own one or more non-CHP generating stations with a combined generating capacity above 2MW, excluding any CHP stations or stand-by generators
  • operate a CHP station with a generating capacity above 2MW and produce non-qualifying electricity

You’re liable to account for the CPS rates of CCL on the quantity of CPS rate commodities that are used to generate electricity.

Find more information on how to submit returns for Climate Change Levy.

The Climate Change Levy return must be signed by a responsible person. This should be, in the case of:

  • a limited company, the director or company secretary
  • partnerships, one of the partners
  • sole proprietorships, the proprietor
  • an unincorporated body, an authorised official
  • a trust, a trustee or the beneficiary(ies)

A Welsh language version of the form (CCL 100W) is available on request. Read the Climate Change Levy return page for details of where to request the form.

12. Keeping records

Every person involved (in whatever capacity) in making or receiving supplies of CPS rate commodities must retain records. Essentially these are no different to those required for normal commercial accounting as well as for the other taxes under the care and management of HMRC.

The most common records you must keep are detailed in keeping records for Climate Change Levy.

13. Correcting errors

You can correct errors in the amount of tax declared as payable following the same procedure outlined in correcting Climate Change Levy errors.

14. Credits for solid fossil fuel or LPG moved from a generating station

If you account for the CPS rates of CCL on solid fossil fuels or LPG delivered to a generating station, but then subsequently remove that fuel from the station, you may be entitled to a tax credit for CPS tax previously accounted for.

For example, this may happen when coal is taken from a generating station and sold on to another person or where coal is removed from a station that is being decommissioned. You must be able to demonstrate that CPS tax was originally accounted for on the fuel removed and will need to keep records to support all claims for a credit.

Where you sell solid fossil fuels or LPG to another person, that supply may be chargeable with the main rates of CCL. Read Climate Change Levy: detailed information.

15. Reviews and appeals

15.1 Scope of the review and appeal procedure

The review and appeal procedure relating to the CPS rates of CCL is available to anyone affected by any of the decisions listed in Excise Notice CCL1/5: penalties and interest, including:

  • whether to register a person for CCL, or cancel their registration
  • whether or not a person is liable to pay CCL, the amount and the due date for payment
  • liability to a penalty and/or interest/penalty interest and the amount of any such liability
  • any decision which is appealable in accordance with the liability of directors for penalties
  • any entitlement to a tax credit or repayment of a tax credit and the extent of our liability to pay interest
  • the assessment of underdeclared CCL, and the amount of such an assessment

Find more information about appeal and review rights in our factsheet, HMRC 1: HM Revenue and Customs decisions - what to do if you disagree

Your rights and obligations

Read the HMRC Charter to find out what you can expect from HMRC and what we expect from you.

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If you need general help with this notice or have Climate Change Levy question you should phone our Climate Change Levy helpline.

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