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Guide to the Climate Change Levy for Businesses

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When you receive your business energy bill, you may notice a charge called the Climate Change Levy (CCL).

Businesses may not be aware that there are ways to reduce these charges. In this guide, we explain what the CCL is and how much it costs.

What is the Climate Change Levy (CCL)?

The Climate Change Levy is an environmental tax on commercial energy use in the UK. It is an additional tax, alongside VAT, that certain businesses will pay on their energy.

Why do businesses have to pay the CCL?

The UK government introduced the Climate Change Levy as part of a wide array of legislation to reduce greenhouse gas emissions. However, it is an energy tax rather than a carbon tax. Alongside CCLs are Climate Change Agreements (CCAs). These enable businesses to get a reduced rate by committing to improve their energy consumption.

The UK government aims to motivate companies to become more energy efficient. This will be required for the UK to meet the current 2050 targets of net-zero greenhouse gas emissions.

Which organisations have to pay CCL?

Most businesses will be required to pay the main rates of the CCL.

However, there are some exceptions to this. A business may be exempt or entitled to reduced rates if they are:

  • An organisation that has a charitable status engaged in non-commercial activities
  • A small business with an energy usage under 1,000 kWh of electricity or 4,397 kWh of gas in a given month
  • A business that is supplied via a domestic energy contract

You will also be exempt from paying the CCL if:

  • The energy won’t be used in the UK
  • The energy won’t be used as a fuel
  • The energy will be used to generate electricity
  • The energy has been supplied from certain combined heat and power schemes

There are steps businesses can take to reduce their CCL charges. Energy-intensive businesses can commit to a Climate Change Agreement. This is a voluntary commitment to reducing energy and carbon usage.

Business can receive a reduction of up to 90% on charges for business electricity and 65% on charges for business gas.

How much will my business have to pay?

The amount that businesses will pay for the CCL is set by the government and varies each year. The rate will be the same across all business energy suppliers.

The CCL rate for the 2020 to 2021 financial year is:

  • £0.00811 per kWh for electricity
  • £0.00406 per kWh for gas

Like with VAT, the more energy you use, the more you will pay for the CCL.

How does my business pay the CCL?

The rate for how much you will pay is calculated based on your business’ per kilowatt-hour of energy usage; the CCL amount is set by the government each year.

Businesses must register for the CCL and those that to do so will face paying a penalty. Your energy provider will then calculate how much the CCL is for your company and apply it to your bill. They will then pay HMRC on your behalf.

You will be able to find details on how much you have paid for the CCL on your business energy bill.

Is there an allowance for business’ energy-efficient appliances?

Many businesses can apply for capital allowances when buying energy-efficient appliances. Capital allowances will reduce the tax you pay on qualifying equipment.

Items that are eligible include:

  • LED or energy-efficient lighting
  • Solar panels
  • Energy-efficient appliances
  • Electric vehicles.

Can my business reduce its CCL payments?

As the CCL is automatically added to your business energy bills, you cannot reduce your rates unless you qualify for one of the above exemptions.

However, you can reduce your CCL costs by increasing energy efficiency within your business. Your business can take steps to reduce your energy usage and your CCL rates by:

  • Carrying out an energy audit
  • Checking insulation at your premises
  • Switching to energy-efficient LED light bulbs
  • Turning off lights and appliances when not in use
  • Avoiding leaving computers and laptops on standby
  • Upgrading old appliance to more energy-efficient alternatives

The quickest way to save on your business energy costs is by comparing energy prices.

At Business Energy, our team of experts can help you find the cheapest energy deal that meets the needs of your business.

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