The Charity Tax Group and Charity Finance Group have called for charities to be exempt from proposed changes to energy tax in their responses to a consultation into business energy efficiency.

The Business Energy Efficiency Review consultation, which closed this week, proposed the replacement of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and Climate Change Levy (CCL) with a new energy consumption tax based on the CCL. The government has also proposed to develop a single reporting framework, through “the prism of the Energy Savings Opportunity Scheme (ESOS)” – a mandatory energy measurement and auditing scheme.

The CFG has said that initial estimates suggest that the merging of the two taxes could cost the sector around £12m, but this could depend on the rate of the new business energy tax, as well as a number of other factors.

The consultation document says that “any changes to the level of tax, and/or to the balance of tax costs across fuels, in the proposed single tax could affect charities”, adding that the “government’s proposal to merge the CRC and CCL into a single energy consumption tax based on the CCL model would exclude certain activities of a number of organisations from a price signal that drives energy and emissions savings”.

Both sector bodies are calling for a charity exemption from the new energy tax, in order to cover charities’ primary purpose energy usage, rather than the current business/non-business test, and proportionate reporting.

The CTG said that charities would not benefit from any alternative tax reliefs given against corporation tax paid as they are exempt from corporation tax on their primary purpose trading activities, so tax reliefs given against corporation tax have no effect on behaviour.

A charity’s primary purpose is stated in its governing documents, and a charity won’t pay tax on profits that helps its primary purpose.

'Why include charities?'

The CTG and CFG also asked why charities were included in the proposals, when the consultation looks directly at businesses.

In a joint statement they said: “Given that the whole thrust of the consultation is about ‘business energy’ and improving the efficiency and competitiveness of UK businesses, we question what was the policy objective of including charities in this regime given that they are not businesses in the traditional sense.”

The CTG response document says that the business/non-business test for the CCL is modelled on the VAT test, which means that charities whose buildings are treated as charity business for VAT purposes (such as a National Trust mansion), are caught and would be within the scope of the new energy tax if it followed the CCL test.

In its consultation response document, the CFG has said it welcomes the government’s efforts to simplify and rationalise the business energy efficiency tax landscape, however it has two main concerns. Firstly, that “any business energy efficiency tax must not cover ‘non-business’ (or primary purpose) charitable activities”, and secondly, that “reporting requirements should not apply to small charities (those with less than 250 employees)”.

It says that it is “deeply concerned” that any extensions to the reporting requirements would stretch the resources of small and medium sized charities at a time when demand for their services has been increasing.

Andrew O’Brien, head of policy and public affairs at the CFG, said: “Improving the UK’s energy efficiency is important and charities must be part of that. However, we also need to ensure that reforms to tax do not undermine the long standing principle that money for public benefit should not to be taxed.

“The government must put in place safeguards to ensure that this principle is maintained and that reporting requirements are not disproportionate. We look forward to engaging constructively with government on this issue.”

John Hemming (pictured), chair of the CTG, said: “CTG fully supports the Government’s efforts to maximise energy efficiency and encourage behavioural change.

“However, in the context of charities we are not convinced that this is best achieved by imposing a tax and associated reporting requirements. Instead, we would propose a charity exemption from the new tax and optional and proportionate reporting requirements”.

The consultation ran from 28 September to 9 November 2015.