Environmental Taxes Handbook

Some aspect or other of the negative impact of human activities upon the environment hits the headlines on an almost daily basis. While differences remain between the major industrialised nations over the steps which should be taken to reduce that impact, many European countries, including the UK, have introduced rules to their tax systems to penalise those activities likely to cause most environmental damage, and have introduced tax incentives to reduce detrimental environmental impact. Businesses which are involved in any activity identified by the law as attracting an environmental tax penalty will need to know what their liabilities and obligations are. Equally, businesses eligible for environmental tax incentives will want to be in a position to claim their full entitlement to allowances. This book covers the UK “penalty” taxes, namely landfill tax, climate change levy and the aggregates levy, as well as the topical issue of the EU emissions trading scheme and the system which allows companies a tax deduction for the costs of cleaning up contaminated land. It also deals with the tax incentives, such as special benefit rules for cars with low CO2 emissions and tax incentives to encourage staff to cycle to work. The book provides a comprehensive guide to the current range of UK environmental taxes and incentives aimed at businesses (and their advisers) potentially affected by them.

Table of contents. iii

Tables of authorities. xii

SECTION 1: CLIMATE CHANGE LEVY.. 1

CCL NOTICES. 2

OVERVIEW... 3

Introduction. . 3

Statutory framework. 4

CCL Notices. 6

Glossary of terms and abbreviations. 8

1.   SCOPE OF THE TAX.. 11

1.1.... Overview.. 11

1.2.... Taxable supplies. 11

1.3.... Taxable supplies — general 12

1.4.... Taxable supplies — electricity. 12

1.5.... Taxable supplies — gas. 12

1.6.... Taxable supplies — other commodities. 13

1.7.... Wholesale Supplies. 13

2.   BASIS OF CALCULATION AND RATES OF LEVY.. 14

2.1.... Basis of calculation. 14

2.2.... Reduced rate and half-rate. 14

2.3.... Rate for electricity. 15

2.4.... Climate Change Levy and VAT. 15

3.   RELIEFS AND SPECIAL TREATMENT FOR TAXABLE  SUPPLIES. 16

3.1.... Exclusions, exemptions, reduced rate and half-rate — general 16

3.2.... Exclusions. 16

3.3.... Exemptions. 16

3.4.... Reduced rate. 17

3.5.... Half-rate. 17

4.   EXCLUDED SUPPLIES. 18

4.1.... Supply for domestic or non-business charity use -general 18

4.2.... Domestic use. 18

4.3.... Exclusions from domestic use. 18

4.4.... Liability to the levy of stair and street lighting. 18

4.5.... De minimis limits. 19

4.6.... Non-business charity use. 19

4.7.... Educational institutions. 20

4.8.... Mixed use. 21

4.9.... Application of de minimis limit to mixed supplies. 21

4.10... Mixed-use certificates. 21

4.11... ‘Reasonable care’ procedure. 21

4.12... Supplies to domestic users only. 21

4.13... Levy tax point rules. 21

5.   EXEMPT SUPPLIES. 23

5.1.... Supplies not for burning in the UK.. 23

5.2.... Transport 23

5.3.... Supplies of taxable commodities to producers other than electricity producers. 24

5.4.... Relief from Excise Duty. 24

5.5.... Supplies to and from electricity producers. 25

5.6.... Combined Heat & Power Stations. 26

5.7.... Supplies of taxable commodities to CHP stations. 26

5.8.... Supplies to CHP stations – relief entitlement 27

5.9.... Threshold Criteria. 27

5.10... Qualifying Power Output 28

5.11... Identifying QPO.. 28

5.12... Levy Exemption Certificates. 28

5.13... Partly exempt stations co-fired with taxable commodities and renewable source input fuel 29

5.14... CHP LEC records. 29

5.15... Reconciliation of electrical output 29

5.16... Treatment of CHP LECs by CHP operators. 30

5.17... Indirect Supplies of CHP electricity by licensed suppliers. 30

5.18... CHP declarations. 30

5.19... Balancing and averaging periods. 31

5.20... The mechanics of the balancing / averaging periods system.. 31

5.21... Use of CHP LECs by electricity suppliers – indirect supplies. 31

5.22... CHP Levy exemption certificates (LECs) 32

5.23... Acquisition of CHP electricity. 32

5.24... Self-supplies by electricity producers. 32

5.25... Exemption for certain recycling processes. 32

5.26... Exemption: electricity from renewable sources – general 33

5.27... Qualifying renewable sources. 33

5.28... The prescribed conditions. 34

5.29... Renewable source declarations. 34

5.30... Administration. 34

5.31... Monitoring of the renewables scheme. 35

5.32... Averaging period rules. 35

5.33... Accounting for renewable source electricity. 36

5.34... Trading of CHP and Renewable Levy Exemption Certificates (LECs) 37

6.   REDUCED RATE SUPPLIES: ENERGY INTENSIVE USERS. 38

6.1.... Climate change levy agreements (CCLAs) — general 38

6.2.... Eligible facilities. 38

6.3.... Recent developments. 38

6.4.... Energy-intensive installations. 39

6.5.... Issue and notification of CCLA certificates. 40

6.6.... How to obtain the levy discount 40

6.7.... Supplies qualifying for the reduced rate. 40

6.8.... Variation of CCLA certificates. 41

6.9.... Types of CCLA. 41

6.10... Certification periods. 42

6.11... Monitoring performance under the agreements. 42

6.12... Supplies to horticultural producers. 43

7.   CERTIFICATION FOR EXCLUSIONS, EXEMPTIONS, AND REDUCED RATE SUPPLIES  45

7.1.... General guidelines. 45

7.2.... Accurate application of levy reliefs. 45

7.3.... Exclusions - domestic use and non-business charity use. 45

7.4.... Issue of levy exclusion certificates. 46

7.5.... “Reasonable care”. 46

7.6.... Supplier certificates for exemptions and reduced rate. 46

7.7.... Supplier certificates for more than one relief 47

7.8.... Suppliers’ responsibilities in respect of supplier certificates. 47

7.9.... Commodities for export or re-sale. 48

7.10... Transport 48

7.11... Supplies to electricity producers (other than self supplies) 48

7.12... Supplies to CHP Schemes (other than self-supplies) 48

7.13... Auto-generators. 49

7.14... Producers of taxable supplies other than electricity. 50

7.15... Supply not used as fuel 50

7.16... Electricity from renewable sources. 50

7.17... Reduced rate supplies. 50

7.18... Retrospective supplier certificates. 51

7.19... Annual review of relief entitlement 51

7.20... Varying a supplier certificate. 51

7.21... Onward supplies –  procedures. 52

8.   DEEMED SUPPLY: OWN USE OF COMMODITIES BY UTILITIES AND PRODUCERS  53

8.1.... Deemed supply — general 53

8.2.... Deemed supply principles. 53

8.3.... Extent of deemed self-supply. 53

8.4.... Exempt uses of energy. 54

8.5.... Deemed self-supplies -  de minimis limits. 54

9.   IMPORTATION OF TAXABLE COMMODITIES INTO THE UK.. 55

9.1.... Importation: general 55

9.2.... Commodities other than electricity and gas. 55

9.3.... Non-European Union taxable commodities. 55

9.4.... European Union taxable commodities. 56

10.  TIME OF SUPPLY FOR LEVY PURPOSES. 57

10.1... Background. 57

10.2... Climate change levy accounting document (CCLAD) 57

10.3... Information to be shown on the CCLAD.. 57

10.4... Failure to issue a CCLAD.. 58

10.5... Electricity or gas: special utility schemes. 58

10.6... Application for inclusion in a Special Utility Scheme. 58

10.7... Commodities other than electricity or gas. 59

10.8... General Rules. 59

10.9... Rate changes: supplies of electricity or gas. 61

10.10. Rate changes: other commodities. 61

10.11. Change of circumstances or intentions. 62

10.12. Direct Debit Scheme. 62

10.13. Errors on previous returns. 62

11.  BAD DEBT RELIEF FROM THE LEVY.. 63

11.1... Supplier’s entitlement to bad debt relief (BDR) 63

11.2... Records required to support BDR claims. 63

11.3... BDR claims procedure. 64

11.4... Payments received after BDR has been claimed. 64

11.5... Simplified bad debt relief procedure. 64

12.  REGISTRATION AND DEREGISTRATION.. 65

12.1... Requirement to be registered for the levy. 65

12.2... Group Registration. 65

12.3... Transfer of a going concern. 65

12.4... Combined Heat and Power Schemes. 66

12.5... Supplies by non-UK residents. 66

12.6... Divisional registration. 66

12.7... Registration procedures. 66

12.8... Electricity generators other than CHP schemes. 67

12.9... Importers. 68

12.10. De-registration. 68

13.  ACCOUNTING FOR THE LEVY.. 69

13.1... The levy return. 69

13.2... Payment methods. 69

13.3... Under and over-declarations. 70

13.4... Annual returns. 70

13.5... Records that must be kept 70

13.6... Records to be kept by persons receiving taxable commodities. 71

13.7... Preservation of records. 71

13.8... Information storage. 72

14.  PENALTIES, INTEREST AND ASSESSMENTS. 73

14.1... Registration penalties. 73

14.2... Production of records and information. 73

14.3... Failure to preserve records. 73

14.4... Ceasing to make taxable supplies. 73

14.5... Failure to render returns or otherwise comply with the regulations. 73

14.6... Non-resident levy payers: failure to appoint a tax representative. 74

14.7... Walking possession agreement (not applicable in Scotland) 74

14.8... Interest and penalties on under-declared levy. 74

14.9... Voluntary disclosures. 74

14.10. Incorrect levy relief certificate. 74

14.11. Penalty interest 75

14.12. Interest payable by HM Revenue & Customs. 75

14.13. Mitigation of penalties. 75

14.14. Reasonable excuse. 75

15.  REVIEWS AND APPEALS. 76

15.1... The review procedure. 76

15.2... Scope of the review procedure. 76

15.3... The review and appeals system.. 76

15.4... Request for a review.. 77

15.5... Complaints against HM Revenue & Customs. 77

16.  THE FUTURE.. 78

Schedule A: Taxable commodities used for non-fuel purposes (CCL1 p 12) 81

Schedule B: Descriptions of energy-intensive installations Extract from table, Schedule 6, Finance Act 2000  82

Schedule C: Supplier certificate Form PP11, supporting analysis Form PP10, and completion notes  86

Schedule D:     Examples of production use qualifying for exemption. 94

Schedule E: Form CCL1 and notes on completion. 96

SECTION 2: LANDFILL TAX.. 99

OVERVIEW... 100

Introduction. 100

Statutory framework. 101

Public Notices. 101

1.   SCOPE OF THE TAX.. 102

1.1.... Overview.. 102

1.2.... Disposal of material as waste. 102

1.3.... A disposal by way of landfill 103

1.4.... Landfill sites. 104

1.5.... Definition of a Controller. 105

1.6.... Information to be provided. 105

1.7.... The rates of tax. 105

1.8.... Exemptions. 106

1.9.... Determination of weight 109

1.10... Mixed loads. 110

1.11... Waste liable at the lower rate. 110

1.12... Volume to weight conversion factors. 112

2.   REGISTRATION.. 114

2.1.... Introduction. 114

2.2.... Other registration issues. 114

2.3.... Registration forms for completion by operators. 115

3.   ACCOUNTING FOR THE TAX.. 117

3.1.... The landfill tax return. 117

3.2.... Tax point 117

3.3.... Correction of errors. 118

3.4.... Records. 118

4.   CREDIT.. 119

4.1.... Overview.. 119

4.2.... Permanent removal 119

4.3.... Bad debt relief 119

4.4.... Environmental Bodies Credit Scheme. 120

5.   ASSESSMENTS, PENALTIES AND INTEREST.. 123

5.1.... Power to assess. 123

5.2.... Interest 123

5.3.... Penalties. 124

5.4.... Mitigation and reasonable excuse. 125

6.   REVIEW AND APPEALS. 126

6.1.... Overview.. 126

7.   ISSUES FOR PRACTITIONERS. 127

7.1.... Interaction with other taxes. 127

7.2.... Planning Issues. 127

7.3.... Disposal of Waste. 127

7.4.... Site operator. 128

7.5.... Key Risk Areas. 132

SCHEDULE A: Landfill Tax Registration Forms. 133

LT 1.. Application for registration. 133

LT 1A. Application for registration – Site details. 137

LT 2.. Partnership details if applicable. 141

SCHEDULE B: Landfill Tax Return  (LT 100) 142

SCHEDULE C: VAT & Duties Tribunals / Courts, Landfill Tax Cases. 144

SECTION 3: AGGREGATES LEVY.. 147

OVERVIEW... 148

Introduction. . 148

Statutory framework. 149

1.   SCOPE OF THE TAX.. 150

1.1.... Overview.. 150

1.2.... Commercial exploitation. 150

1.3.... Use for construction purposes. 151

1.4.... Permitted circumstances. 151

1.5.... Penalty provisions. 151

1.6.... Definition of a site for the purposes of the levy. 152

1.7.... Definition of the originating site. 152

2.   NON-TAXABLE AGGREGATE.. 153

2.1.... Definition of non-taxable aggregate. 153

2.2.... Materials exempt from the levy. 153

2.3.... Mixing of aggregate. 154

2.4.... Definition of a watercourse. 154

2.5.... Definition of a highway. 155

3.   EXEMPT PROCESSES. 156

3.1.... Definition of exempt process. 156

4.   RELIEFS FROM THE LEVY.. 157

4.1.... Relief from the levy. 157

4.2.... Relief for industrial and agricultural use. 157

4.3.... Person entitled to relief 157

4.4.... Claiming relief from the levy. 157

4.5.... Evidence to be retained by suppliers. 157

4.6.... Relief for aggregate in Northern Ireland. 158

5.   EXPORTS. 159

5.1.... Exports - general 159

5.2.... Evidence to be retained - EU country. 159

5.3.... Evidence to be retained - non-EU country. 159

5.4.... Claiming relief for exported aggregate. 160

5.5.... Accounting records. 160

6.   IMPORTS. 161

6.1.... Liability of imported aggregate. 161

6.2.... Imported processed products. 161

6.3.... Aggregate dredged from outside UK territorial waters. 161

7.   REGISTRATION.. 162

7.1.... Who has to be registered. 162

7.2.... Registration procedures. 162

7.3.... Registration date. 163

7.4.... Registration - non-residents. 163

7.5.... Registration — multiple sites. 163

7.6.... Registration — mixing processes. 163

7.7.... De-registration. 164

7.8.... Transfer of a going concern. 164

7.9.... Group registration. 164

7.10... Divisional registration. 165

8.   CALCULATING THE WEIGHT OF AGGREGATE.. 166

8.1.... Use of a weighbridge. 166

8.2.... Mixing aggregates. 166

8.3.... Determination of weight 166

9.   ACCOUNTING FOR THE LEVY.. 167

9.1.... Submission of returns. 167

9.2.... Tax point 167

9.3.... Invoicing arrangements. 167

9.4.... Adjustment of errors. 168

9.5.... Credit for returned goods. 168

9.6.... Aggregates levy account 168

10.  PAYMENT OF THE LEVY.. 170

10.1... Payment methods. 170

11.  BAD DEBT RELIEF. 171

11.1... Entitlement 171

11.2... Records to be kept 171

11.3 .. The amount claimable. 171

11.4... Procedure for claiming bad debt relief 172

11.5... Subsequent payments from a customer. 172

11.6... Bad debt relief account 172

12.  RECORDS. 173

12.1... Records to be retained. 173

12.2... Storage of records. 174

12.3... Production of records. 174

13.  PENALTIES AND INTEREST.. 175

13.1... Failure to register. 175

13.2... Failure to obtain HMRC approval to appoint a tax  representative. 175

13.3... Failure to keep records. 175

13.4... Failure to render returns. 175

13.5... Incorrect declaration. 175

13.6... Interest and penalties on under-declared levy. 176

13.7... Penalty interest 176

13.8... Voluntary disclosure. 176

13.9... Breach of walking possession agreement 176

13.10. Evasion of aggregates levy. 177

13.11. Payment of interest by HMRC.. 177

13.12. Security for the levy. 177

13.13. Mitigation of penalties. 177

14.  REVIEWS AND APPEALS. 178

14.1... Review procedure. 178

14.2... Scope of review procedure. 178

14.3... Appeals system.. 178

14.4... Review of a decision. 179

14.5... Appeal to the VAT and Duties Tribunal 179

14.6... Complaints against HMRC.. 179

Schedule A: Relevant substances. 180

Schedule B: Prescribed industrial and agricultural processes. 181

Schedule C: AGL Return (AG 100) 184

Schedule D: Bad debt relief insolvency procedures. 185

Schedule E: Aggregates levy - phased introduction in Northern Ireland. 186

SECTION 4: OTHER TAXES. 187

OVERVIEW... 188

Introduction. . 188

1.   EXCISE DUTY.. 189

1.1.... Fuel duties. 189

1.2.... Biodiesel fuel 190

1.3.... Vehicle excise duty. 191

1.4.... Lorry road user charge (LRUC) 191

2.   CAPITAL ALLOWANCES. 193

2.1.... Disadvantaged areas. 193

2.2.... Designated energy saving plant and machinery. 193

2.3.... Environmentally Beneficial Plant and Machinery. 194

2.4.... Contaminated land. 195

3.   CARBON TRADING.. 198

3.1.... Overview.. 198

3.2.... Carbon Credits Partnerships. 198

3.3.... Investors. 199

3.4.... Illustrated example of potential benefits for the investor. 199

3.5.... Carbon trading partnership tax. 200

ADDENDUM.. 201

1....... World Bank Facility. 201

2....... Carbon capture and storage in the North Sea. 201

3....... Creation of a new energy and environmental research institute. 201

4....... Measures to improve fuel efficiency. 201

Index  203