The Climate Change Levy (CCL) is one of the environmental tax and relief measures introduced by the government to encourage businesses to reduce their energy consumption. It came into effect in April 2001. Here we explain exactly how it works.
What is the Climate Change Levy?
The Climate Change Levy is an environmental tax on your company’s electricity and gas use. Its aim is to encourage businesses to become more environmentally friendly and use less energy more efficiently in a bid to combat the impacts of climate change.
The Climate Change Levy is charged on taxable commodities for lighting, heating and power purposes, such as electricity, natural gas, petroleum and coal, but it is not charged on road fuel and other oils as these are already subject to excise duty.
Is my business affected by the Climate Change Levy?
There are two rates for the Climate Change Levy: the main rate and the Carbon Price Support rate.
If you work in the industrial, commercial, agricultural, or public services sectors, Climate Change Levy will be charged at the main rate on electricity, gas and solid fuel, such as coal.
If you own generating stations or you operate combined heat and power stations, the Carbon Price Support rate will apply.
How much will the Climate Change Levy cost my business?
Climate Change Levy rates are usually revised at the start of April each year. Since 1 April 2020, the main levy has stood at a rate of 0.811p per kilowatt hour (kWh) for electricity and 0.406p per kWh for gas.
On 1 April 2021, the electricity rate will reduce to 0.775p per kWh, while the gas rate will increase to 0.465p kWh. The reason for this difference is that electricity is regarded as a greener energy source than gas as it can be generated from renewable sources such as solar, wave and wind.
How do I pay the Climate Change Levy?
Each business must register for the Climate Change Levy. The charge will then be calculated by your business energy supplier and automatically added to your bill – you’ll be able to see it listed as a separate item. Once the levy has been collected by your energy supplier, it will be passed on to HMRC.
If you do not pay the Climate Change Levy, or you do not register, you will have to pay a penalty of £250 for each ‘failure’.
Can my business avoid paying the Climate Change Levy?
Not all businesses are required to pay the Climate Change Levy. You may be exempt if:
you are a charity engaged in non-commercial activities.
Note that the Climate Change Levy exemption for renewable electricity was removed in August 2015.
If your business is not exempt, you may be able to pay a reduced rate by making energy efficient changes to your business. The best way to do this is to sign a Climate Change Agreement (CCA).
What is a Climate Change Agreement?
A Climate Change Agreement is a voluntary agreement between a UK organisation and the Environmental Agency which aims to reduce energy use and carbon dioxide emissions. In return, your business will receive a discount of up to 90% in the Climate Change Levy rate paid on electricity bills and up 65% on other fuels.
As part of the agreement, you’ll need to take steps to improve your business’ energy efficiency and lower your average energy consumption.
Additionally, you must measure and report your business’ energy use and carbon dioxide emissions against agreed targets over four two-year terms. Providing your business has met its targets at the end of each term, you can continue to receive the Climate Change Levy discount.
You can check whether your business is eligible to sign up to a Climate Change Agreement on the government website.
How can I make my business more energy efficient?
There are a number of ways you can make your business more energy efficient – we’ve listed some of the main ones below:
Fit LED lighting
Use natural light where you can, but if it’s not sufficient, install energy-efficient LED lighting. LEDs use 75% less electricity than equivalent incandescent lighting and produce little carbon dioxide
Use light sensors
You’ll also reduce energy wastage by around 30% if you fit sensors that turn lights on when someone walks into a room and go off again when no activity is detected for a set time
Switch off office equipment
Make sure electronic equipment such as laptops, photocopiers and printers, as well as microwaves and vending machines, are all switched off overnight. Also unplug mobile phone and laptop chargers when not in use
Activate sleep modes
Enable energy-saving features to ensure equipment automatically powers down when it’s not in use – the sleep mode should ideally be set to come on after 15 minutes or less of inactivity. Avoid using screensavers and only print when necessary
Get a smart meter
This will show you where your business uses most of its energy and where you need to reduce it. It will also ensure your energy bills are accurate and not based on estimates
Turn down the thermostat
Reducing the temperature by just one degree can save up to 10% on your heating bills. Make sure windows and doors are shut when the heating is on.
Finally, one of the easiest ways to pay less for your business energy bills is to use an online comparison service such as ours and switch to a cheaper tariff.