You will want to run a profitable business. How much is VAT and CCL are undoubtedly the two biggest questions you’re asking? While the former is straight forward, the latter is not. What is a levy? Find out what these all mean and protect your business’ net profit by reducing or avoiding the Climate Change Levy entirely.
What is the Climate Change Levy?
There are a few terms we need to know before we understand the Climate Change Levy and not confuse this with the VAT definition.
What is a Levy?
A levy is a tax that you have to pay to a government upon a particular assessment. A green tax was introduced with the objective of reducing global warming and softening our carbon footprint. The CCL is, therefore, an environmental tax intended to encourage you to:
- Operate your business in a more sustainable and environmentally-friendly way.
- Be more energy efficient in the way you run your business.
- Reduce your company’s overall greenhouse gas emissions and pollution.
The CCL is part of the UK government’s wider Carbon Offsetting programme as it offers tax relief on the Climate Change Levy if measures are taken to reduce emissions by entering a Climate Change Agreement (CCA) with the Environment Agency (see below). A measure may include using renewable electricity or choosing a business internet plan that contributes to reducing your company’s overall environmental impact.
What is VAT compared to CCL? Are they charged the same way?
The definition of VAT is different from that of the CCL. Let’s differentiate them.
How much is VAT costing your business?
The current VAT rate on business electricity and gas bills is typically at a rate of 20%. Note that some businesses can pay a reduced rate of 5% if they use less than 145 kw hours (or under 33 kw hours) of gas per day. For the purpose of VAT, the main rates of CCL are part of the value of the supply on which VAT is due.
Note that VAT is not chargeable on self-supplies. In summary, the VAT definition and VAT on electricity is charged separately to the Climate Change Levy. They will both appear as separate entries on your bills. You will already have gained a better understanding of the main entries on your business energy bills, so now you’re ready to read on.
How much could the CCL cost your business?
What are the Climate Change Levy rates? Unless your business operates in electricity generation using low-carbon technologies, then you’ll be paying CCL at the “Main Rate” (otherwise you’ll be on the “Carbon Price Support Rate”).
If your business is in either the industrial, commercial, agricultural or public services sector, you’ll be paying CCL at the Main Rate. Remember that your CCL charge is based on your consumption. By now you’ll have a good idea of the average business energy bills your company should expect based on your sector and company size.
The Main Rate tends to increase every year, and in 2019 we saw a sharp increase upon the previous year, as shown in the table below:
|Time period||Natural gas||Electricity|
|1st April 2018 to 31st March 2019||0.203p/kWh||0.583p/kWh|
|1st April 2019 to 31st March 2020||0.339p/kWh ↑67%||0.847p/kWh ↑45%|
Climate Change Levy Exemption, Exclusions and Relief
Let’s distinguish between supplies that are excluded from CCL, exempt from CCL and those entitled to a reduced rate:
Excluded from CCL: When Can I Ignore CCL?
Energy supplies excluded from CCL rates are those that are:
- for domestic use
- for non-business use by charities
- below the small (de minimis) quantities*
|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)|
Exempt from CCL: When Can I Avoid Paying CCL?
Energy supplies are exempt from the main rates of CCL if:
- They're not destined for use or consumption in the UK
- They will not be used as fuel.
- They come from renewable sources.
- They’re used in certain forms of transport.
- They’re supplied to or from certain Generating Stations or Combined Heat and Power schemes.
- The electricity was generated before 1 August 2015 from renewable sources.
Reduced Rate CCL: When Can I Pay Less?
You may be entitled to a reduced main rate on CCL if:
- You operate an energy-intensive business, and
- You enter into a climate change agreement (CCA) with the Environment Agency (EA).
|Taxable commodity||Rate from 1 April 2019|
|Petroleum gas or other gaseous hydrocarbon in a liquid state||78%|
|Coal and lignite; coke and semi-coke of coal or lignite; petroleum coke||78%|
Expert’s Tip on Avoiding CCL
Maintaining minimal consumption levels means a lower CCL charge. If your consumption is low enough, you would be excluded from CCL for that period altogether. Our energy experts at Selectra believe that this is best achieved by monitoring your business energy usage while on a dynamic pricing tariff. This allows you to make huge savings simply by shifting your energy use to when it’s cheapest.
After analysing all the business energy tariffs on the market, we recommend taking a close look at the Agile Octopus tariff by Octopus Energy. It's their 100% renewable electricity tariff. That means you’ll be exempt from paying the Climate Change Levy! Also, when wholesale prices drop, so do your bills. If you can shift your daily electricity use outside of peak times, you can save even more.
How does Agile Octopus work?
|At 4 pm every day, your unit rates are updated for the next 24 hours,based on the wholesale market rates.||As you use electricity they'll use the half-hourly data from your smart meter to calculate your charges.||A 21p daily subscription covers costs including metering, distribution, and other fixed costs.|
We plan to enable more smart tech to harness the Agile tariff so that people’s homes and businesses can be optimised to automatically use electricity off-peak.
Octopus Energy Agile Report: Download it here.