Climate Change Levy: What is it & who’s exempt?
The Climate Change Levy is an environmental tax imposed on businesses as part of the government’s fight against climate change. Read on to find out how much its costs and how your business can avoid it.
What is the Climate Change Levy?
The Climate Change Levy (CCL) is an environmental tax placed on businesses to encourage them to:
- Operate in a more sustainable and environmentally-friendly way.
- Be more energy efficient.
- Reduce overall greenhouse gas emissions and pollution.
The levy was first introduced in 2001 and forms part of the UK government’s wider Climate Change programme to reduce emissions and reach net-zero by 2040.
Who pays the climate change levy?
The Climate Change Levy UK is charged on a businesses gas and electricity supply. It applies to businesses operating in the industrial, agricultural and commercial sectors, as well as public services. However, there are ways to become exempt or pay a reduced rate (see below).
How do businesses pay?
Businesses pay the Climate Change Levy to their energy provider as part of their monthly gas and electric bills. The provider then passes the amount on to HM Revenue & Customs (HMRC).
This means that the Climate Change Levy will appear on your business energy bill. Typically, the amount will be displayed separately alongside other aspects of your bill (e.g. VAT, unit rate, standing charge), so you know exactly what you are being charged.
The Climate Change Levy is not the same as value-added tax (VAT). Businesses will be charged for the CCL on top of VAT, meaning both charges will appear on your energy bill.
Rates: How much is the Climate Change Levy?
There are two different types of Climate Change Levy rates: main rates and carbon price support rates (CPS). There are also ways a business can pay a reduced rate.
The amount you pay is based on your energy consumption, so the bigger your business and the more energy you use, the more Climate Change Levy you will pay. Find out the average energy consumption for the different business sizes so you can calculate your Climate Change Levy.
1. Main rates
Main Climate Change Levy rates are paid on electricity, gas and solid fuels, such as coal and petroleum coke. These rates apply to businesses in the industrial, agricultural, commercial and public services sectors.
The rates tend to change from year to year. In the table below we have listed the main rates from April 2018 to April 2022.
|Taxable commodity||April 2018 - April 2019||April 2019 - April 2020||April 2020 - April 2021||April 2021 - April 2022|
|Electricity (£ per KWh)||0.00583||0.00847||0.00811||0.00775|
|Gas (£ per KWh)||0.00203||0.00339||0.00406||0.00465|
|LPG (£ per kg)||0.01304||0.02175||0.02175||0.02175|
|Any other taxable commodity (£ per kg)||0.01591||0.02653||0.03174||0.03640|
2. Reduced rates
Businesses that fall into the main rates category can be eligible for a reduction of these rates. You will be entitled to a reduced main rate if:
- You operate an energy-intensive business, and
- You enter into a Climate Change Agreement (CCA) with the Environment Agency (EA).
If eligible, as of April 2020 your business can get a 90% reduction on the main rate of electricity and a 65% reduction on the main rate of gas and other fuels.
What is a Climate Change Agreement (CCA)? These are voluntary agreements made between a business and the UK Environment Agency to encourage a reduction in energy usage and emissions. Check if your business is eligible for a CCA and to see if you can access the Climate Change Levy reduced rates.
3. Carbon Price Support (CPS) rates
Carbon Price Support rates are designed to encourage the use of low-carbon technologies. These apply to fuels such as gas, LPG, and solid fossil fuels such as coal.
Only owners of electricity generating stations and combined heat and power stations operators pay CPS Climate Change Levy rates so they will likely not apply to your business.
Who is exempt from the Climate Change Levy?
Some businesses can be either excluded or exempt from the Climate Change Levy. The difference between being ‘excluded’ or ‘exempt’ is a bit confusing, but ultimately it means your business does not need to pay the CCL.
Climate Change Level exemptions apply to businesses in the industrial, agricultural, commercial and public service sectors that meetcertain conditions. The conditions are supplies that are:
- to be burned outside the UK
- liquefied petroleum gas and solid fuel intended for re-sale
- used in some forms of transport
- to producers of taxable commodities other than electricities
- to electricity producers (other than combined heat and power stations, small generating stations and stand-by generating stations)
- to combined heat and power stations
- to small generating stations, stand-by generators and CHP stations
- not used as fuel
- for use in metallurgical and mineralogical processes
- of renewable electricity (generated after August 2015 and supplied before end of March 2018)
If you are eligible for one of the Climate Change Levy exemptions, you will need to submit a PP10 and PP11 form (available on the HMRC website), to ensure you don’t have to pay.
Some types of businesses are automatically excluded from paying the Climate Change Levy. These include businesses that:
- engage in non-commercial charity work
- use less than the de minimis limits of fuel outlined in the following table
|If the supply is||The de minimis amount is less than or equal to the following|
|coal or coke||1 tonne held out for sale as domestic fuel|
|piped gas||4,397 kWhm (kilowatt hours per month)||metered electricity||1,000 kWhm|
|unmetered electricity||1,000 kWhm|
|LPG in cylinders||50kgs (net weight)|
|LPG in bulk||2 tonnes (of tank capacity)|