Climate Change Levy on Business Energy Explained

Climate Change Levy (CCL) is a government levy charged on the supply of taxable energy commodities to business users in the United Kingdom. It was introduced under the Finance Act 2000 and is administered by HMRC. CCL applies to supplies of electricity, natural gas, liquefied petroleum gas (LPG) and solid fuels used for business purposes.

CCL is intended to encourage businesses to improve energy efficiency and reduce carbon emissions. It forms part of the UK government's broader approach to environmental taxation. The levy is charged to the energy supplier, who typically passes the cost on to the business customer as a separate line item on the energy bill.

CCL is distinct from VAT. Both may appear on a commercial energy bill, but they are separate charges governed by different legislation and administered under different rules. The presence of one does not determine the treatment of the other, though there is an interaction between CCL exemption and VAT in certain circumstances — see our VAT on Business Energy guide for more detail.

CCL applies to supplies of electricity, natural gas, LPG and solid fuels when those supplies are made to a business user for business purposes. The levy is charged per unit of energy supplied and the rates differ by commodity type. Current rates are published by HMRC on the gov.uk website and are updated periodically.

Not all energy supplies are subject to CCL. Supplies to domestic users are not within scope. Certain other supplies are excluded or exempt under the rules — for example, supplies used for certain qualifying purposes, supplies from certain qualifying renewable sources (subject to the rules in force at the time), and supplies to certain qualifying bodies. The rules on exclusions and exemptions are detailed and specific.

Whether CCL applies to a particular supply depends on the nature of the supply, the use to which the energy is put, and whether any exemption or relief applies. This is a matter that requires assessment of the individual circumstances and, where there is any doubt, advice from a qualified tax adviser or HMRC.

Where CCL is applicable, it typically appears as a separate line item on a commercial electricity or gas bill. It is charged per unit of energy consumed and is calculated by applying the relevant CCL rate to the number of units supplied in the billing period. The rate applicable depends on the commodity — electricity and gas carry different rates.

The CCL charge is separate from the unit rate for the energy itself, the standing charge, and any VAT. A business energy bill may therefore show several distinct line items: the cost of the energy consumed, a standing charge, CCL, and VAT applied to the total. The exact presentation varies by supplier.

If a business is entitled to an exemption or relief from CCL, the bill should reflect this — either by showing no CCL charge or by showing a reduced charge. If a business believes it may be entitled to an exemption or relief that is not being applied, it should raise this with its supplier and seek advice from its accountant or tax adviser.

CCL and VAT are both government charges that may appear on a commercial energy bill, but they are entirely separate. VAT is a general consumption tax applied to the supply of goods and services. CCL is a specific environmental levy applied to the supply of taxable energy commodities to business users. They are governed by different legislation and administered under different HMRC rules.

VAT is calculated as a percentage of the value of the supply (including CCL where applicable). CCL is calculated as a fixed amount per unit of energy supplied. The two charges interact in the sense that VAT may be applied to a bill that includes CCL, but the eligibility rules for each are assessed independently.

A business that is exempt from CCL is not automatically entitled to a different rate of VAT, and vice versa. However, where a supply is exempt from CCL, this can affect the VAT treatment of that supply in certain circumstances. The interaction between CCL and VAT is addressed in HMRC guidance and is a reason why businesses with questions about their energy tax position should seek professional advice.

HMRC's rules provide for a number of situations in which CCL does not apply or applies at a reduced rate. These include supplies to domestic users, supplies used for certain qualifying purposes such as certain horticultural or agricultural uses, supplies from certain qualifying renewable or low-carbon sources (subject to the rules in force at the time and the relevant certification requirements), and supplies to certain qualifying bodies.

The rules on exclusions and exemptions are detailed and the eligibility conditions are specific. Whether a particular supply qualifies for an exclusion or exemption depends on the facts and the applicable rules at the time of the supply. The rules have changed over time and continue to be subject to change through legislation and HMRC guidance.

Free Energy Help is not a tax adviser and cannot determine whether a business qualifies for any CCL exclusion or exemption. If you believe your supply may qualify for different treatment, we recommend seeking advice from your accountant or tax adviser and referring to the current HMRC guidance on CCL.

CCL rates are set by Parliament and are typically reviewed and updated in each Budget. The rates applicable to electricity and gas have changed a number of times since CCL was introduced and may change again in future. The current rates are published by HMRC on the gov.uk website and should always be checked against the official source rather than relying on third-party summaries.

The rules on exemptions and reliefs have also changed over time. For example, the treatment of supplies from renewable sources has been subject to legislative change. Businesses that have previously benefited from an exemption or relief should not assume that the same treatment continues to apply without checking the current rules.

This page does not reproduce specific CCL rate figures, as these are subject to change. Always check the current HMRC CCL rates page at gov.uk for the rates in force at the time of your supply.

Where a business is entitled to an exemption or relief from CCL, it will typically need to provide documentation or make a declaration to its energy supplier. The supplier relies on this documentation when determining whether to apply CCL to the supply and at what rate. The form and content of the required documentation depends on the basis of the claimed exemption or relief.

The responsibility for the accuracy of any declaration or documentation provided to a supplier rests with the business. If a declaration is found to be incorrect, there may be consequences under the CCL rules. HMRC guidance sets out the requirements for supplier documentation and declarations.

If you are considering providing documentation to your supplier to support a CCL exemption or relief, we strongly recommend that you seek advice from your accountant or tax adviser before doing so. Free Energy Help can note that a CCL query may exist when reviewing your supply, but we cannot advise on the content of any declaration or documentation.

If a business believes that CCL has been incorrectly applied to its energy bills — for example, because it believes it qualifies for an exemption or relief that is not being applied — the first step is typically to raise the matter with the energy supplier. The supplier can review the CCL treatment applied to the account and, where appropriate, issue corrected invoices.

Whether any correction can be applied retrospectively, and for how long, depends on the specific circumstances and the applicable rules. Free Energy Help cannot guarantee that any correction will be made or that any retrospective adjustment will be available. These are matters for the supplier and, where necessary, HMRC to determine.

Where a business believes it has been incorrectly charged CCL, it should seek advice from its accountant or tax adviser before approaching the supplier. A professional adviser can help to assess whether a claim is likely to be valid, what documentation may be required, and how to proceed appropriately.