First introduced in April 2001 under the Finance Act 2000, the Climate Change Levy (CCL) is an environmental energy tax that solely applies to business energy consumers; it is different from Value-added tax (VAT) and it is added to business energy bills as a separate item.
The Climate Change Levy (CCL) aims to encourage a more environmentally-responsible UK and combat climate change by reducing carbon and greenhouse gas emissions and pushing businesses and other non-domestic consumers to use energy more efficiently; the levy is charged on a per kWh basis, which encourages consumers to lessen their energy consumption.
The energy suppliers that supply ‘taxable commodities’ for lighting, heating, and power will be responsible for charging consumers with the appropriate CCL rate.
Businesses in industrial, public service, agricultural, and commercial sectors are required to pay CCL. The aforementioned energy consumers can be charged with 2 types of rates: the Main Rate or Carbon Price Support (CPS) Rate:
Business energy consumers in all the sectors we’ve mentioned above will be charged at this rate. The Main Rate can be found on your business energy bill. Consumers pay their CCL at the main rate on gas, electricity, and solid fuels (such as coal, coke, lignite, and petroleum coke) usage. Charities (engaged in non-commercial activities), non-profit organisations, domestic consumers, and businesses that use a minimal amount of energy (less than at least 1,000kWh on electricity or 4,397kWh on gas/de minimis) are exempted from CCL.
Carbon price support rates
This type of reduced rate is typically paid by businesses that generate their own energy (electricity and gas). These types of rates aim to encourage firms to use low carbon technology for energy production.
Climate Change Levy (CCL) Rates
Climate Change Levy (CCL) is ONLY charged on every unit per kilowatt-hour for gas and electricity used. That means that it does not apply on standard charges and other components found on your business energy bill.
It is important to note that there are separate CCL rates for both electricity and gas. Also, the levy rises in line with the annual inflation (since April 1, 2007 as per the UK government).
The table below reveals the latest CCL rates per kilowatt-hour on electricity and natural gas in the UK.
Is it possible to pay a reduced rate on Climate Change Levy?
Yes, it’s possible. In fact, you may be able to reduce your CCL by up to 90-93% on electricity and at least 65-75% on fuels.
Energy-intensive businesses are eligible to enter a Climate Change Agreement (CCA) with the Environment Agency. This agreement aims to reduce energy consumption and carbon dioxide emissions to ensure a safer environment.
Climate Change Agreement? What’s that?
Energy-intensive businesses are able to benefit from Climate Change Agreements (CCAs) as it allows them to reduce the cost of the Climate Change Levy (CCL) on their energy bills.
Climate Change Agreements are made between energy-intensive businesses (from various sectors) and the Environment Agency as a means to reduce carbon dioxide emissions, minimise energy consumption, and improve energy efficiency which can lead to thousands of pounds of savings on a yearly basis.
How do Climate Change Agreements work?
According to the UK Government, energy usage and carbon emissions that go against targets over 4, 2-year target periods will be measured and reported by an operator that has a Climate Change Agreement.
Businesses that have more than one eligible facility or organisation in the same sector have the option to group them all together under one Climate Change Agreement with a shared target across their available facilities, or hold a CCA for each individual facility.
A group of facilities that holds a CCA is referred to as a target unit.
If a business successfully meets its targets during the reporting period, a reduced rate certificate will be provided with a list of facilities entitled to claim a discount on the CCL. This certificate is updated on the last working day of each month.
How do I know if the Climate Change Levy applies to my business?
If your business is in the industrial, public service, agricultural, or commercial sector, then you are eligible to join the CCL scheme.
For more information, check the list below:
Business/non-domestic energy consumers
Businesses and non-domestic energy consumers will be charged:
- VAT on CCL
Businesses/non-domestic energy consumers classified as ‘low’
Businesses with low-usage will be excluded from the Climate Change Levy. On top of that, they will also be qualified for a VAT discount.
Domestic/charitable non-business use
Registered charities (non-business) with a charitable status that is recognized by HMRC will be excluded from the Climate Change Levy as well as qualified for a VAT discount or reduction.
For businesses or organisations that partake with a mix of activities, it is important to take note that some of these MIGHT meet the government’s domestic/charitable non-business criteria, and some may not.
It’s crucial to estimate your energy usage and split them between your usage that are 1.) qualified for exemptions and 2.) not qualified for any exemptions whatsoever.