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Climate Change Levy: Understanding One of the UK's Biggest Non-Domestic Energy Taxes

The Climate Change Levy applies to industrial, agricultural, commercial and public sectors and its price is going up.

Climate Change Levy (CCL) is an energy tax for the non-domestic energy sector. It was introduced through the Finance Act in 2001. CCL is applied to fuels such as gas, electricity and Liquid Petroleum Gas (LPG), used by the majority of UK business. CCL is paid directly to HM Revenue & Customs. However it should be noted that some charities and businesses with low energy use are fully exempt from having to pay it.

CCL, since 2005, has increased year-on-year based on the average retail price index (RPI). The current (2018) rate stands at £0.00203 per kWh for gas and £0.00583 per kWh for electricity.

From 2019, the rate increases drastically to £0.00339 per kWh for gas and £0.00847 for electricity. Compared to 2017/18 rates, this is an average increase of 56% in CCL costs across sectors.

2020/21/22 rates will be announced in the Chancellor’s 2018 Autumn Budget.

2017/18 vs. 2019/20 CCL Rates

The table shows the difference based on 2017/18 rates versus 2019/20 rates to help you fully understand the cost impact by using real energy data from seven key sectors. Across the board, it’s an average increase of 56% on CCL costs, with hotels, hospitals and supermarkets being the biggest sectors affected.

Sector

Total CCL Payable (2017/2018)

Total CCL Payable (2019/2020)

Difference

Percentage Increase

Hotels

£32,510.36

£52,268.43

£19,758.07

61%

Supermarkets

£23,410.54

£35,324.32

£11,913.78

51%

Leisure Centres

£8,559.07

£13,499.74

£4,940.67

58%

Hospitals

£79,762.89

£122,013.06

£42,250.18

53%

Office Blocks

£3,196.88

£4,975.64

£1,778.75

56%

Schools

£2,336.05

£3,720.86

£1,384.81

59%

GP Practices

£424.33

£656.27

£231.94

55%

 

However, there are exemptions and reliefs for CCL; such as Climate Change Agreements (CCAs) or through installing on-site generation, like Combined Heat & Power (CHP) units.

CCAs

CCAs are a voluntary contractual agreement between an organisation and the Environment Agency (EA). The organisation, usually an industrial company, agrees to report energy use against a target to the EA.

CCAs focus heavily on manufacturing industries and give little relief to businesses outside of this sector when it comes to CCL. The next step is looking at on-site generation; CHP’s.

CHP’s

When it comes to investing in CHP, the first step is identifying whether your site is viable for a CHP based on its energy demand. If this is the case then ensuring it is sized correctly for your site is the next step. There are several suppliers of CHP, and all have bespoke contracts for potential new CHP’s.

Once you have your CHP installed, then the next step is having the unit successfully registered with the Department of Business, Energy & Industrial Strategy (BEIS) CHP Quality Assurance (CHPQA) Programme. By doing this, you can apply for exemption from CCL on an annual basis. To maintain your CCL exemption, you must remain part of the CHPQA programme and carry out annual CCL reconciliation.

On top of claiming exemption from CCL, successful registration with the CHPQA grants eligibility to a range of benefits, including; uplifted Renewable Obligation Certificates, preferential Renewable Heat Incentive rates, Enhanced Capital Allowances and a reduction in Business Rates.

The cost of CCL on non-domestic energy bills will continue to rise. If you are unsure of what your CCL costs are, it is recommended you check your energy bills. CCL is often shown as a separate line item, usually above the VAT line.

For further information we have a free paper on CCL here.

Photo Credit: Quinn Dombrowski via Flickr

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