What you need to know and how it may impact your business
In response to the climate emergency, the UK Government introduced measures to support businesses to operate with a reduced impact on the environment. This included a range of relief schemes and environmental taxes to tackle global warming.
The Climate Change Levy (CCL) encourages businesses to run in an environmentally-friendly way.
An environmental tax that charges based on the amount of energy a business uses, the CCL urges UK businesses to improve their energy efficiency and make operational changes to reduce their carbon footprint.
Launched under the Finance Act 2000 as part of the UK's Climate Change Programme, the Climate Change Levy came into action on 1 April 2001.
Intended to increase the energy efficiency of UK businesses, and for energy used for non-domestic purposes in general, the CCL aims to reduce carbon emissions. When it was formed, the Climate Change Levy was forecast to reduce emissions by 2.5 million tonnes per year by 2010.
The 2020 budget noted that the Climate Change Levy's gas supply charges will increase in 2022/23 and 2023/24.
EAn energy tax that applies to non-domestic consumers, along with value-added tax (VAT), the Climate Change Levy applies to businesses in:
All businesses that fall into the categories above will pay the main rates of CCL, which is charged on taxable commodities like power, lighting and heating. It applies to most energy users, with exceptions in some cases for transport, charities, and also for the domestic setting.
Some organisations will qualify for a CCL exemption, meaning they won't need to pay the main rate of CCL for some supplies. You will qualify if one of the following criteria applies:
The energy company that supplies your gas or electricity is responsible for charging your business the appropriate rate for CCL.
As the energy firm is supplying the taxable commodity, it is their role as a supplier to collect the CCL charge and transfer it to the UK Government via HM Revenue & Customs (HMRC).
Some business customers might find that the CCL rate and charge are displayed as separate items on their energy bills.
The Climate Change Levy relates to the units of energy your business has used per kilowatt-hour (kWh). When you look at your business gas or electricity bill, you'll see that the CCL applies only to the unit rate and does not apply to your standard charges.
This means you are being taxed on the amount of energy your business uses, but not for the service charge you are paying to the energy firm to supply your energy and keep you connected.
The CCL has separate rates for electricity and gas. Back in 2001 when the CCL was set up, the levy was frozen at:
Five years later, the UK Government announced it would start rising the Climate Change Levy in line with inflation rates and the tax is now much higher.
The rates from 1 April 2020 are:
You can access competitively priced gas and electricity bills and find renewable energy deals by using Utility Saving Expert's online comparison tool.
Our technology is free to use, works instantly and is fully accredited by Ofgem, providing you with balanced and unbiased results to help you find the best business rates for gas and electricity, or switch to a green business energy deal.
You'll find the main rates for the Climate Change Levy listed on your business energy bills. Businesses that run in the industrial, commercial, agricultural and public service sectors are charged the main rates for energy usage of gas, electricity including electricity from nuclear, and solid fuel including coal, coke, lignite and petroleum coke.
You can access lower rates of CCL if your business generates its own electricity or uses low-carbon technology. This is part of the Government's ambition to encourage an increase in green, renewable energy solutions and reduce the carbon emissions from industry.
Some businesses can pay a reduced version of the main rate of CCL charges. Your business could be eligible if it is energy-intensive.
To pay a reduced rate for the Climate Change Levy, your business must enter into voluntary agreement to reduce its energy use and CO2 emissions with the Environment Agency. This is called a Climate Change Agreement (CCA).
These formal agreements set out incentivised, structured routes for improving energy efficiency. Challenging targets are set and there are financial penalties if these are not met. Businesses must complete audits and provide evidence to demonstrate they are complying with the agreement.
Once you enter into this agreement, your business will be bound by the CCA and can receive:
From 1 April 2020, the percentage you will be charged for the Climate Change Levy if you have a Climate Change Agreement are:
Businesses entitled to reduced rates should submit a PP11 Supplier Certificate, downloaded from the HMRC website, detailing the percentage of CCL relief that is required.
Energy supplies that are used solely for business purposes are charged:
Low energy supplies used solely for business purposes may qualify for a reduced rate of VAT and be excluded from the CCL. If you qualify, you should check your supplier has applied all exclusions and reductions to your bill.
Energy supplies used for domestic or charitable non-business purposes will qualify for a reduced VAT rate be excluded from paying the CCL. If the energy supply is only partly used for these purposes, only that part qualifies for the exclusions. Charities should check their status is recognised by HMRC.
Organisations that mix activities between business purposes with domestic and charitable non-business purposes may qualify for some exemptions. You will be asked to make estimates about your energy usage to provide clarity on how much power is used for the activities that meet criteria for exemption. If 60% or more of your energy usage meets these criteria then your business may be excluded from CCL charges and eligible for reduced VAT.
Exemptions from the main rates of the Climate Change Levy will usually apply to electricity, gas and solid fuel supplies if the fuels:
2019 saw the UK's greenhouse gas emissions fall for the seventh year in a row and it was a record year for clean energy, with more than a third (36.9%) of electricity was generated by renewables. The energy sources included:
Kwasi Kwarteng, the energy minister, called this "extraordinary progress" for tackling climate change and expected this progress to built on during the months and years ahead.