The climate change levy (CCL) is a tax on energy delivered to non-domestic users in the United Kingdom. Its aim is to provide an incentive to increase energy efficiency and to reduce carbon emissions, however there have been ongoing calls to replace it with a proper carbon tax.
Introduced on 1 April 2001 under the Finance Act 2000 it was forecast to cut annual emissions by 2.5 million tonnes by 2010, and forms part of the UK’s Climate Change Programme. The levy applies to most energy users, with the notable exceptions of those in the domestic and transport sectors. Electricity generated from new renewables and approved cogeneration schemes is not taxed. Electricity from nuclear is taxed even though it causes no direct carbon emissions.
From when it was introduced, the levy was frozen at 0.43p/kWh on electricity, 0.15p/kWh on coal and 0.15p/kWh on gas. In the 2006 budget it was announced that the levy would in future rise annually in line with inflation, starting from 1 April 2007.
Climate Change Agreements allow eligible energy-intensive businesses to receive up to a 90% discount on electricity and 65% on gas from the Climate Change Levy (CCL) in return for meeting energy efficiency or carbon-saving targets.
Climate Change Agreements (CCAs) are voluntary agreements containing targets for eligible industry sectors to increase energy efficiency or reduce carbon dioxide (CO2) emissions.
What are the main rates of CCL?
The main rates of CCL apply to the taxable supply of specified energy products (‘taxable commodities’) for use as fuels (that is for lighting, heating and power) by business consumers including consumers in:
public administration, and
The main rates of CCL do not apply to taxable commodities supplied for use by domestic consumers or to charities for non-business use.
What are the taxable commodities?
There are four groups of taxable commodities, as follows:
- natural gas when supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility for burning liquefied petroleum gas (LPG) and other gaseous hydrocarbons in a liquid state
- other taxable commodities: coal and lignite; coke, and semi-coke of coal or lignite; and petroleum coke.
What are the rates?
The main rates of CCL are charged at a specific rate per unit of energy. There is a separate rate for each of the four groups of taxable commodity. The rates are based on the energy content of each commodity and are expressed in kilowatt-hours (kWh) for gas and electricity, and in kilograms for all other taxable commodities. The main rates are levied at a reduced rate (which varies for each taxable commodity) for participants of the climate change agreement (CCA) scheme (see paragraph 3.4). A lower rate applies to gas in Northern Ireland (see paragraph 3.5.1) and also for energy used in metal recycling (see paragraph 3.5.2). All these rates are set out in the following table:
Click here to see CCL rates
What is a taxable supply?
A taxable supply is the supply of a taxable commodity by an energy supplier to a business consumer that is not excluded or exempt from the main rates of CCL (see paragraphs 3.2 and 3.3). Taxable supplies include self-supplies.
What is a self-supply?
If you are a gas or electricity utility or a producer of LPG or other taxable commodities and consume for your own business purposes taxable commodities that you would otherwise supply on (for example, to heat and light administration buildings unconnected with your production activities) these are deemed to be self-supplies. You must account for the main rates of CCL on your self-supplies in addition to any CCL due on your supplies of taxable commodities to third party consumers.
Can it be avoided?
If you use energy from a renewable energy source – such as such as wind, solar or geothermal – you will be exempt from CCL. Domestic and non-business charity use is also exempt from the levy. If you’re an energy intensive user or a horticulture user you might qualify for a partial exemption.
Envantage have a range of experienced consultants with demonstrated knowledge in successfully establishing and managing these complex agreements over a range of industries. We will ensure your agreement is set up correctly and is effectively managed. This is of paramount importance to protect compliance in the event of a DECC audit.