The climate change levy - your questions answered
The Climate Change Levy (CCL) is one of a number of tax and relief measures introduced by the Government to encourage businesses to reduce their energy consumption and support climate change targets. If your business meets the criteria, you must register for the Climate Change Levy. Failure to register, or to pay, could lead to financial penalties.
Do you need to increase your understanding of the CCL? Are you unsure if your business needs to register and how much you could be taxed?
Here, we help you understand the levy and what it means for your organisation.
What is the Climate Change Levy?
The Climate Change Levy is an environmental tax on commercial energy use. It was introduced by the UK Government in 2001 to encourage businesses to be more energy efficient and support the UK’s target to reduce emissions.
The CCL is charged on taxable commodities for lighting, heating and power purposes but is not charged on road fuel and other oils because these are already subject to excise duty. ‘Taxable commodities’ include electricity, natural gas, petroleum and coal.
Which businesses are eligible to pay the CCL?
The levy applies to business and non-domestic energy usage with some specific exceptions.
If your business uses less than 33kWh electricity and/or 145kWh gas a day on average, you do not have to pay the Climate Change Levy. Schools, charities engaged in non-commercial activities, as well as domestic energy usage including homes, caravans and self-catering accommodation, are also exempt from the scheme.
When a business has a single site with multiple Meter Point Administration Numbers (MPANs), the total sum of all MPANs is calculated. This is the figure used to establish whether a CCL tax should be applied in line with the ‘de minimus’ numbers for electric and gas use.
What is the difference between the main rate and the CPS rate?
The main rate of CCL applies to those eligible businesses identified above. Any business with a generating station, or which operates a CHP (Combined Heat and Power) station, will be charged the Carbon Price Support (CPS) rate. If you generate your own energy and make money through the Feed-in Tariff, it is unlikely you will have to pay the levy.
How much is the Climate Change Levy?
CCL rates are calculated per kilowatt hour of usage and change over time. Since 1 April 2021, the electricity rate has been set at 0.775p per kWh, and the gas rate at 0.465p per kWh.
From 1 April 2022, the gas rate will increase to 0.568p per kWh and from 1 April 2023 it will rise again to 0.672p per kWh. The electricity rate will remain at 0.775p per kWh until at least 31 March 2024.
This is because electricity is regarded as a greener energy source than gas, taking advantage of renewable generation sources such as solar, wave and wind.
How do I pay the CCL?
Eligible businesses must register for the Climate Change Levy using a Government Gateway user ID and password. The charge is then calculated by your business energy supplier and displayed as separate items on your monthly gas or electricity invoice. This charge is then passed onto HM Revenue and Customs by the energy supplier.
If you fail to register or you do not pay the CCL, you could be liable to a £250 penalty for each ‘failure’.
How can I reduce my Climate Change Levy charge?
It’s possible for eligible businesses to pay a reduced rate by signing a Climate Change Agreement (CCA), which is a voluntary agreement between an organisation and the Environment Agency.
CCAs are available for a wide range of industry sectors that use eligible energy-intensive processes, such as those within the chemicals, paper, supermarket and agricultural sectors.
In signing a CCA, you are committing to take steps to improve your energy efficiency and therefore lower your average energy consumption. In return, you will receive a discount of up to 90% on electricity and up to 65% on other fuels in the Climate Change Levy.
Any business with a Climate Change Agreement must also measure and report its energy use and carbon dioxide emissions against agreed targets over four two-year terms. Reporting is audited by Environment Agency (EA) and HRMC and the CCL discount will apply providing the targets have been met at the end of each term.