Should your business be paying the Climate Change Levy?
Along with value-added tax (VAT), the Climate Change Levy (CCL) is an energy tax that applies to non-domestic consumers in the United Kingdom. The Climate Change Levy is chargeable on both electricity and gas supplies.
This article will tell you everything you need to know about the CCL and how your business may qualify for a CCL exemption.
When was the CLL introduced?
The climate change levy was introduced on 1 April 2001 under the Finance Act 2000 as part of the UK’s Climate Change Programme.
What is the aim of the CCL?
● Increase energy efficiency of energy used for business or non-domestic purposes.
● Reduce carbon emissions - when it was formed the CCL was forecast to cut annual carbon emissions by 2.5 million tonnes by 2010.
Who does the Climate Change Levy apply to?
The CLL applies to all energy users except for those in the transport and domestic sectors.
The levy applies to most energy users, with the notable exceptions of those in the domestic and transport sectors. Electricity from nuclear is taxed even though it causes no direct carbon emissions.
What does the Climate Change Levy cost?
The CCL is only chargeable only on units/ kWh used and doesn’t apply to other energy bill components such as standard charges. There are separate CCL rates for electricity and gas.
In 2001, the CCL levy was frozen at 0.15p/kWh on gas, 0.43p/kWh on electricity and 0.15p/kWh on coal. In the 2006 budget, however, the government announced that starting from 1 April 2007, the CCL levy would rise annually in line with inflation.
How to reduce your CCL levy by up to 90%
● Energy-intensive users can sign a Climate Change Agreement
● If your business is entitled to CCL relief, you must submit a PP11 Supplier Certificate for each supply covered, advising what percentage of CCL relief is applicable. You can download a PP11s from the HM Revenue & Customs (HMRC) website.
What type of energy user are you?
Now that you know what the climate change levy is, you can find out whether or not it applies to you.
Business or non-domestic use
If your energy supply is used solely for non-domestic or for business purposes, you will be charged:
● VAT at the standard rate
● CCL
● VAT on CCL
Low energy usage business or non-domestic use
If your business or non-domestic energy usage is classified as ‘low’, you will qualify for a reduced rate of VAT, and you will also be excluded from the CCL. Find out here if your business qualifies for a low-usage VAT discount.
Remember to check with your supplier that these exclusions and reductions have been applied to your bill.
Domestic or charitable non-business use
If your energy supply is used partially or wholly for domestic or charitable non-business purposes, that part of the supply qualifies for both a reduced VAT rate and for exclusion from the CCL.
Criteria:
● Registered charity
● Have your charitable status recognised by HMRC
● Energy used for domestic purposes
Mixed use
If your organisation operates with a mix of activities, some MAY meet the government’s criteria for domestic or charitable non-business use, while others may not. If this is the case, you’ll need to estimate how to split your usage between your usage that qualifies for exemptions and your usage that does not. In all cases, you’ll need to be able to demonstrate that any VAT declaration represents your valid qualifying use.
If 60% or more of your energy usage meeds domestic or charitable non-business criteria, then your entire energy supply is charged at the reduced rate of VAT, and you will be excluded from the CCL.
