What is the Climate Change Levy UK?
What’s on this page?
- When was the CLL introduced?
- What is the aim of the CCL?
- Who does the Climate Change Levy apply to?
- What does the Climate Change Levy cost?
- How to reduce your CCL levy by up to 90%
- What type of energy user are you?
- What is the Climate Change Levy UK – any further questions?
What is the Climate Change Levy? The Climate Change Levy (CCL) is an energy tax that applies to non-domestic consumers in the United Kingdom along with value-added tax (VAT). The Climate Change Levy is chargeable on both electricity and gas supplies.
This article will tell you everything you need to know about the CCL and how your business may qualify for a CCL exemption.
When was the CLL introduced?
The climate change levy was introduced on 1 April 2001 under the Finance Act 2000 as part of the UK’s Climate Change Programme.
What is the aim of the CCL?
- Increase energy efficiency of energy used for business or non-domestic purposes.
- Reduce carbon emissions – when it was formed the CCL was forecast to cut annual carbon emissions by 2.5 million tonnes by 2010.
Who does the Climate Change Levy apply to?
The CLL applies to all energy users except for those in the transport and domestic sectors.
The levy applies to most energy users, with the notable exceptions of those in the domestic and transport sectors. Electricity from nuclear is taxed even though it causes no direct carbon emissions.
What does the Climate Change Levy cost?
The CCL is only chargeable only on units/ kWh used and doesn’t apply to other energy bill components such as standard charges. There are separate CCL rates for electricity and gas.
In 2001, the CCL levy was frozen at 0.15p/kWh on gas, 0.43p/kWh on electricity and 0.15p/kWh on coal. In the 2006 budget, however, the government announced that starting from 1 April 2007, the CCL levy would in future rise annually in line with inflation.
How to reduce your CCL levy by up to 90%
- Energy-intensive users can sign a Climate Change Agreement
- If your business is entitled to CCL relief, you must submit a PP11 Supplier Certificate for each supply covered, advising what percentage of CCL relief is applicable. You can download a PP11s from the HM Revenue & Customs (HMRC) website
What type of energy user are you?
Now that you know what the climate change levy is, you can find out whether or not it applies to you.
Business or non-domestic use
If your energy supply is used solely non-domestic or for business purposes, you will be charged:
- VAT at the standard rate
- VAT on CCL
Low energy usage business or non-domestic use
If your business or non-domestic energy usage is classified as ‘low’, you will qualify for a reduced rate of VAT and you will also be excluded from the CCL. Find out here if your business qualifies for a low-usage VAT discount.
Remember to check with your supplier that these exclusions and reductions have been applied to your energy bill.
Domestic or charitable non-business use
If your energy supply is used partially or wholly for domestic or charitable non-business purposes, that part of the supply qualifies for both a reduced VAT rate and for exclusion from the CCL.
- Registered charity
- Have your charitable status recognised by HMRC
If your organisation operates with a mix of activities, some could meet the government’s criteria for domestic or charitable non-business use, while others may not. If this is the case, you’ll need to estimate how to split your usage between your usage that qualifies for exemptions and your usage that does not. In all cases, you’ll need to be able to demonstrate that any VAT declaration represents your valid qualifying use.
Does 60% or more of your energy usage meet domestic or charitable non-business criteria? Your entire energy supply is charged at the reduced rate of VAT and you will be excluded from CCL UK.
Climate Change Agreements
It’s time to get smart with your Climate Change Levy. Enter into a Climate Change Agreement.
What is a Climate Change Agreement?
Climate Change Agreements (CCAs) are voluntary agreements made between UK industry and the Environment Agency to reduce energy use and carbon dioxide emissions. They were established to allow energy-intensive businesses to reduce the cost of the Climate Change Levy (CCL) standing charge on their electricity and gas bills. For organisations holding a CCA, the CCL will be reduced by up to:
- 90% on electricity bills
- 65% on other fuels
Companies eligible for CCA’s are those that carry out an ‘eligible process’, i.e. a process at a site which is considered energy intensive by the national Environment Agency or is controlled under the Environmental Permitting Regulations. This can be anything from plastic moulding or extruding and metal packaging to agricultural businesses such as intensive pig and poultry farming.
Climate Change Agreements provide a formal and incentivised structure to improve energy efficiency, by agreeing to challenging targets and financial penalties for non-compliance. Participants are given an overall objective by 2020, with “milestones” at 3 biennial intervals to ensure good progress is being made – 2014, 2016 and 2018.
We are currently in Phase 2 of the scheme (April 2013 – March 2023) and significant changes have been made; a new base year is in place, targets have been reset and penalties are higher. Managing CCAs in Phase 2 is a more complex task. Audit compliance is crucial to avoid new penalties for non-conformance. The Environment Agency (EA) and HMRC are requesting more comprehensive evidence packs and have already commenced auditing and imposing penalties.