What you need to know and how it may impact your business
Climate Change Levy (CCL)
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.
What the Climate Change Levy is for?
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Who the CCL applies to
What the Climate Change Levy costs
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:
- 0.43p per kWh for electricity,
- 0.15p per kWh for gas, and
- 0.15p per kWh for coal.
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:
- 0.811p per kWh for electricity,
- 0.406p per kWh for gas,
- 2.175p per kg for petrol, and
- 3.174p per kg for any other taxable commodity.
Reducing business energy costs
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Main rates for CCL
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.
Carbon Price Support rates for CCL
Paying reduced rates for CCL through CCAs
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:
- 92% reduction in the CCL rate paid for business electricity, and
- 81% reduction in the CCL rate paid for business gas.
From 1 April 2020, the percentage you will be charged for the Climate Change Levy if you have a Climate Change Agreement are:
- 8% for electricity,
- 19% for gas,
- 23% for petrol, and
- 19% for any other taxable commodity.
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.
How your business energy supply is affected by CCL
Latest updates to the Climate Change Levy (CCL)
- Through the 2020 budget, the Chancellor of the Exchequer announced that gas and other CCL charges will increase in 2022/23 and 2023/24. However, other rates are expected to remain the same. These changes are intended to rebalance the electricity to gas ratio.
- There will also be a change to reduced CCL rates in 2022/23 and 2023/24.
- Businesses will have experienced a substantial rise in CCL rates on 1 April 2019. The financial discount for businesses with a CCA also increased from that date.
The positive impact of action against climate change
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:
- wind farms,
- solar panels, and
- biomass-fuelled power plants.
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.