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HMRC internal manual

Oils Technical Manual

Introduction and overview of oils activity: excise duty on oils (Duty Liability): electricity generation

Electricity generators using rebated heavy oil, in particular gas oil and fuel oil as part of the generating process, used to pay hydrocarbon oil duty. As Climate Change Levy (CCL) is chargeable on taxable supplies of electricity made by electricity utilities ( or those treated as such under the CCL legislation), most generators using coal or natural gas do not have to pay any form of tax on their input fuel.

Therefore electricity generated from oil could have been subject to double taxation - on the input fuel (under hydrocarbon oil duty) and on the electricity output (under CCL). To avoid this, the Government introduced a relief from duty for mineral oil used in electricity generation in January 2006.

Relief must be claimed by a qualified claimant, who is a person who causes qualifying oil to be used to produce electricity in a generating station or in a combined heat and power station (CHP).

Qualifying oil is heavy oil on whose delivery for home use a rebate has been allowed under Section 11(1) of the Hydrocarbon Oil Duties Act 1979. Examples of rebated heavy oils include fuel oil, gas oil, kerosene and other heavy oils such as lubricants and recovered fuel oil.

(Further information on relief from excise duty on oils used to generate electricity may be found in Notice 175).

Biofuels used to generate electricity are also subject to relief of duty. This is provided for by Part 7 of the Biofuels and Other Fuel Substitutes (Payment of Excise Duties etc) Regulations 2004.

(Further information on biofuels used to generate electricity may be found inNotice 179E).