The UK is committed to ‘decarbonising’ the economy by the middle of this century, which means weaning industry off fossil fuel-based energy sources in a bid to lower CO2 emissions and combat climate change.
But of course, pledging to achieve ‘net zero’ carbon emissions is one thing. Achieving it is another. How to reduce and then eliminate reliance on fossil fuels now forms a centrepiece of government policy. With a certain squeamishness about strong-arming the public and businesses alike into change, the government has turned to one of its favourite tools of persuasion – taxation.
The Climate Change Levy (CCL) is a commercial tax aimed at encouraging businesses to improve their energy efficiency. Its basic premise is simple – the more intensive your energy usage, the more you pay, making the idea of cutting your energy use or turning to more efficient sources more attractive.
Here are five things to know about the CCL.
CCL is specific to energy consumption, not fuel
CCL is intended to discourage the use of all fuels as energy sources. But it does not apply to all uses of fuels, with the main exception being transportation fuels. The likes of petrol, road fuel gas and most hydrocarbon oils are dealt with under separate tax regimes.
CCL is a tax added to energy bills, administered by energy companies. It is therefore most commonly associated with gas and electricity, but also LPG and solid fuels like coke and coal.
CCL is for commercial energy users only
CCL is primarily aimed at commercial energy consumption. This includes many of the most energy-intensive industries, although there are some reliefs for specific energy intensive sectors that agree to specific emission reductions with HM Government. There is currently no specific form of CCL directly aimed at domestic energy consumption, but any electricity generated from fossil fuels will include an element of CCL in its price even when supplied to domestic consumers.
CCL is VAT-Linked
In practice, the way that CCL is applied to energy supplies mirrors the way that the standard rate of VAT applies to energy. So where a supply is subject to the standard rate of VAT, it is also subject to CCL (in most cases). Furthermore, VAT is calculated on the VAT inclusive charge for energy, so CCL is VATable.
Charities can claim relief from the CCL
VAT and CCL relief for charities is limited. However, depending on what the use is, charities energy usage may be excluded from CCL.
Here, the government distinguishes between ‘charitable business use’ and ‘non-charitable business use’. The former is not relieved from the levy, and includes things like the energy consumed on premises that are used to generate an income. On the other hand, uses that are excluded from CCL are likely to include anything funded entirely by grants and voluntary contributions.
So, for example, the energy used by a charity shop where items are sold to generate funds is not relieved. But energy used at registered premises for community events, even if fundraising takes place, is likely to be excluded.
Certain industries have reduced CCL rates temporarily through Climate Change Agreements (CCAs)
Climate Change Agreements (CCAs) are a set of energy efficiency targets agreed between sector bodies and the government. Businesses that meet these targets can benefit from significant reductions in CCL – currently 92% for electricity and 88% for gas.
To qualify for levy reductions, businesses must report their energy use and carbon emissions data over a two-year period. This data is benchmarked either against targets for the whole sector (an umbrella CCA) or against specific targets for an individual operator or site (an underlying CCA).
CCA’s are administered by sector associations and trade bodies. Businesses must first apply to their relevant association if they want to enter a CCA. The current CCA scheme runs until 2025.
