A business’ guide to Climate Change Levy
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With the effects of climate change becoming more apparent and harder to ignore, the UK government decided that something needed to be done to encourage businesses to use less energy. They did this by introducing an environmental tax in 2001 known as the Climate Change Levy on the amount of energy businesses use.
What is Climate Change Levy?
Climate Change Levy (which we’ll refer to as CCL from hereon in) is a tax that businesses must pay per kWh of gas and electricity they use. The more energy you use, the higher the amount of CCL you need to pay, and this is why the government hoped it would encourage businesses to think more carefully about their energy usage and how they could improve it.
It was introduced in 2001 but there doesn’t appear to be any signs that it will be scrapped in the near future.
How much is CCL?
How much CCL needs to be paid is dependent on your business’ energy usage. However, you can calculate how much you are paying as long as you know your annual energy usage in kWh. This information can be found on your energy bill.
CCL has increased year on year. In the 2016-17 tax year (April 2016 to March 2017), you’d have been expected to pay around 0.00195p in tax per kWh of gas and 0.00559p for electricity. In the tax year 2020-21, this has increased to 0.00406p for gas and 0.00811p for electricity.
As an example, let’s say that your business used 40,000 kWh of energy in one year (20,000 kWh on gas and 20,000 on electricity). First, you’d multiply 20,000 kWh by 0.00406p to work out how much tax you’ve paid on your gas. This equals £81.20. Then, multiply 20,000 kWh by 0.00811p to calculate the tax due on your electricity. This is £162.20. Added together, your business is paying around £243.40 in CCL each year. Remember that the less energy you use, the less CCL you will need to pay.
Who pays CCL?
Any businesses must pay CCL if they are in the following sectors:
- Industrial
- Public services
- Commercial
- Agricultural
For the businesses listed above, CCL will be charged at the main rate on electricity and gas if you pay the standard VAT rate of 20 per cent. CCL rates will be shown on your business energy bill should you wish to know what you currently pay. For businesses that meet the minimal-use requirements and pay a reduced VAT rate of five per cent, CCL does not need to be paid.
If your business is required to pay CCL, it will automatically be deducted from your energy bill and doesn’t need to be paid separately.
Do charities have to pay CCL?
Whether charities have to pay CCL can be confusing, as the decision is often determined on a case-by-case basis. Even if you are a registered charity who’s recognised by HMRC, this doesn’t automatically mean that you are exempt from paying CCL.
HMRC states that you can be exempt from paying CCL on the energy you use for charitable non-business activities. This might include when the energy is used for worship or related meetings and where income comes from donations instead of fixed charges. For activities or services that are purely funded by grants, donations and voluntary contributions, you could be levy-exempt.
For most charities, it’s likely that the majority of the money comes from donations, but some comes from generated income, such as membership fees. Currently, the rule is that as long as 60 per cent of your energy usage is for charitable non-business purposes, then all of the energy you consume can be excluded from paying the environmental tax. Where there is less than 60 per cent charitable energy usage, that part will be charged at the reduced VAT rate and the rest will be charged at a standard VAT rate. For instance, you may be charged the full rate for 50 per cent of your energy and the remaining 50 per cent may be charged at a lower rate.
Are schools exempt from CCL?
Schools must pay the full CCL rate and are not exempt unless the school is a charity that also performs non-business activities.
The only time a school can claim the low rate of CCL is for energy used in residential accommodation, such as halls of residence at universities or rooms for boarding school students. This also includes other facilities used by residential students, such as kitchens, dining rooms and bathrooms.
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