A guide to the climate change levy
Business electricity and gas rates are complicated. If you closely inspect your energy bills, you’ll notice a climate change levy charge. Here we explain the climate change levy, what it’s for, and the rates that British businesses pay.
What is the climate change levy?
The climate change levy is an additional tax on business energy bills designed to encourage reductions in greenhouse gas emissions. Since 1 April 2001, any business that pays VAT on electricity and gas bills will also pay the climate change levy.
How much is the climate change levy?
The climate change levy is charged whenever a business energy supplier provides electricity, gas, LPG or coal.
The climate change levy is charged per kWh of energy supplied on electricity and gas bills. Business electricity and business gas suppliers are responsible for collecting the levy from their customers and paying the government. The amount you will be charged for the climate change levy is as follows:
|Taxable commodity||Rate from 1 April 2019||Rate from 1 April 2020||Rate from 1 April 2021||Rate from 1 April 2022||Rate from 1 April 2023||Rate from 1 April 2024|
|Electricity Electricity (£ per KWh)||0.00847||0.00811||0.00775||0.00775||0.00775||0.00775|
|Gas (£ per KWh)||0.00339||0.00406||0.00465||0.00568||0.00672||0.00775|
What is the climate change levy exemption?
The most common exemption to the climate change levy is when your business pays the reduced VAT rate on energy bills. To qualify for the climate change levy exemption (and the reduced rate of VAT), your business must:
- Be a charity or not-for-profit organisation.
- Have a property where the majority of your energy is consumed for domestic purposes.
- Use less than 145kWh of gas or 33kWh of electricity per day on average.
Some additional exemptions apply to the climate change levy alone:
- Where the electricity is used in transportation
- Where the electricity is used in the production of metals
- Where your business is not consuming the electricity and gas, it buys
- Where the electricity and gas supplies visiting USA military forces
How do I get an exemption from the climate change levy?
As a small company or charity, you can apply to pay VAT at a reduced rate and to remove the climate change levy from business energy bills.
Apply for an exemption using a VAT declaration form from your existing business gas or business electricity supplier.
How to get a reduced climate change levy rate?
Businesses that hold a climate change agreement are entitled to a 90% reduction in climate change levy rates.
Climate change agreements are voluntary agreements made between large industrial users of energy and the Environmental Agency. The holder of a climate change agreement agrees to reduce energy use and carbon dioxide emissions in exchange for reducing the climate change levy.
Find out more about climate change agreements here.
Improve your energy efficiency today.
The climate change levy is designed to encourage businesses to reduce their electricity and gas consumption by charging for every unit of energy consumed.
Businesses can reduce their climate change levy fees by finding more energy-efficient ways of operating. Explore how your business can reduce wasted energy consumption with an energy audit.