Revenue and Customs Brief 20 (2013): changes to carbon price support tax liability
Published 25 July 2013
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1. Purpose of this brief
This brief amends the climate change levy (CCL) guidance in Notice CCL1/6: A Guide to the Carbon Price Floor which deals with how to calculate the quantity of a carbon price support (CPS) rate commodity used to generate electricity in a combined heat and power (CHP) station.
The Notice itself will be updated in due course.
2. Who should read this brief
Operators of CHP stations which produce mechanical power who are liable to pay CPS rates of CCL on their input fuels.
Operators of CHP stations which do not produce mechanical power and who are liable to pay CPS rates of CCL may also wish to be aware of this legislative change.
3. Background
Since 1 April 2013 the carbon price floor has provided for the taxation of fossil fuels used to generate electricity through CPS rates of CCL and fuel duty. Secondary legislation produced in March set out a formula for calculating the amount of fuel used to produce electricity in a CHP station on which CPS rates of CCL are payable. This formula is reproduced in Notice CCL1/6: A Guide to the Carbon Price Floor. The formula includes in the calculation fuel which is used to produce mechanical power. However, mechanical power is not an electrical output and, therefore, fuel used to produce it should not be liable to CPS rates of CCL or fuel duty.
4. Legislative change
New secondary legislation to amend the formula so that fuel used to produce mechanical power in a CHP station is not subject to CPS rates of CCL will come into force on 1 August 2013. Since it was not the intention that fuel used to produce mechanical power in CHP stations should be liable to CPS rates of CCL, we will not require operators of CHP stations to account for CPS rates on these fuel inputs prior to that date.
No legislative change is needed to exempt fuel used to produce mechanical power in a CHP station from CPS rates of fuel duty. This is because secondary legislation determines the quantity of oil that is referable to the production of electricity in a CHP station by reference to the station’s CHP Quality Assurance (CHPQA) certificate, rather than by a formula within regulations. The 2014 CHPQA certificate (showing actual performance data for 2013) will show the correct figure for this.
5. Action required
If you are an operator of a CHP station which produces mechanical power, and you can separate your mechanical power output data from your total power output data, you should use the new formula to calculate the quantity of fuel referable to the production of electricity in your CHP station. The new formula is as follows:
Where TFI = Total Fuel Input for the station specified on the current CHPQA certificate.
Where QHO = Qualifying Heat Output for the station specified on the current CHPQA certificate.
Where MO = Mechanical Output, which is the amount of power (MWhe) generated by the station in a given annual operation that is used to drive a mechanical load (such as a pump, fan or compressor) through direct coupling, without the use of electricity.
Where TPO is Total Power Output for the station specified on the current CHPQA certificate.
Using this formula will ensure you do not pay CPS rates of CCL on fuel you use to produce mechanical power.If you are able to separate your mechanical power output data from your total power output data, and have already accounted for CPS rates of CCL on fuel used to produce mechanical power, this can be reclaimed on your next return.
If you cannot, at this stage, separate your mechanical power output data from your total power output data, you will be able to claim back the CPS rates of CCL you have paid on fuel used to produce mechanical power when you carry out your next annual review in 2014. At this point, the new legislation will have come into force but you should make sure you use the new formula to review your calculations for the whole of the period of annual operation. Using the new formula will identify the amount of CPS rates of CCL you have overpaid and you can then follow the normal procedures to offset this credit against the CCL due on your next return.
6. Further information
Further information can be obtained from the HM Revenue and Customs website or by telephoning the Excise and Customs Helpline on Telephone: 0300 200 3700.
If you have any technical queries regarding your CHP scheme, you should address these to the administrators of the CHPQA programme.
Issued 25 July 2013