PBR cuts climate levy discount

Changes to environmental levies in December’s pre-Budget report could end up costing larger businesses millions of pounds, some experts believe.

The Chancellor announced in the 2009 PBR that businesses receiving a discount on the Climate Change Levy (CCL) of 80% will see this reduced to 65% by April 2011. Although it may not sound like much, the reduced discount would equate to a cost running into the millions for UK businesses.

Currently, every business must pay the CCL on electricity used directly to its energy supplier. The Department for Energy and Climate Change (DECC) has spent the past few years incentivising businesses to make their operations environmentally friendly by permitting them to pay just 20% of the CCL if they sign up to a climate change agreement, while those that did not had to pay the full amount. The Chancellor’s announcement means those that did sign up will now have to pay 35%.

Daniel Lyons, indirect tax partner at Deloitte, believes the change could end up costing the manufacturing industry alone £50m each year. He also says that energy companies collecting the levy will have to shell out on adjusting their accounting. “There will be additional compliance for energy suppliers, which will have to comply with the rate change,” he says.

But this could be the tip of the iceberg, according to Barbara Bell, senior environmental tax manager at KPMG, who queries the effectiveness of the change and thinks it may be the start of a move to make all companies pay the full amount, removing the discount in time. “Are we working towards the abolition of the [reduced] rate?” Bell asks. “This is the first time in ten years there has been a change to it. This could be a small part of much bigger changes.”