As a UK business, it is your responsibility to be aware of and minimise your impact on the environment. The UK Government has put into place several schemes to act as encouragement in an attempt to get more companies to focus on reducing their carbon footprint. The Climate Change Levy is one such scheme, impacting businesses within certain industries. Read on for our guide to understanding this additional tax and what it means for your business.
What is the Climate Change Levy?
Also known as the CCL, this levy was introduced by the UK Government in 2001. It is a non-domestic tax applied to the energy that businesses within the industrial, public services, commercial and agricultural industries use. The main rates are charges on electricity, gas and solid fuel use as part of the main bill. There are other fees for generating stations (known as the Carbon Price Support Rate) which are based on kw/h for gas and electricity.
The CCL sits under the UK’s Climate Control Programme and aims to increase energy efficiency and reduce carbon emissions. It is charged by business energy suppliers and then passed on to the HM Revenue and Customs.
What businesses are exempt?
Most businesses in the UK need to register for and are privy to some degree of CCL charge. However, there are several exemptions including:
- Charities – Businesses operating as charities can receive a CCL exemption and will be charged at a reduced rate of VAT of 5%. Businesses that operate on sites part run by charities and part run by other businesses can apply for a partial discount too.
- Low energy consumers – Businesses that consume less than 1000kWh (electricity) or 4397kWh (gas) are automatically given exemption and a reduced VAT rate.
- Metallurgical and mineralogical processes – In a means to allow UK suppliers to work competitively alongside European businesses, both metallurgical (extraction, purifications and alloying of metal) and mineralogical businesses are also exempt from this levy.
As of 2020, the Climate Change Agreement was introduced – much for the same reason that metallurgical and mineralogical processes are now exempt. This scheme allows eligible businesses with energy-intensive practices to get a discount of up to 93% off the CCL charges for electricity and 78% for natural gas. To qualify, a business must achieve a set energy-saving target for a minimum of 2 years and apply for this voluntary discount.
What is the going rate in 2021?
The CCL rate is adjusted every year by the government. It varies depending on commodities with gas and electricity measured in kWh and other taxable commodities measured in kilograms. From April 2021, the going rates will be:
Electricity (£ per kWh) – 0.00775
Gas (£ per kWh) – 0.00465
LPS (£ per kWh) – 0.02175
Other taxable commodities (£ per kg) – 0.03640
Those with Climate Change Agreements will gain the following discounts:
Other taxable commodities: 83%.
How CHP can help to reduce costs?
As of 2020, the increase in the Climate Change Levy has forced many businesses to seek out ways to either gain exemption or discounts. The most effective way to achieve either of these is to either gain a Climate Change Agreement or make use of low-carbon technology – including ‘good quality’ CHP systems. The specifications for this are set out by the Combined Heat and Power Quality Assurance (CHPQA) standard. And, to achieve a ‘Good Quality’ rating, your business must:
- Show evidence of energy efficiency.
- Show a project is more efficient than alternative energy options.
- Have an existing system with a Quality Index (QI) of 100.
- Have a system with a power efficiency of 20%.
- Have an accurately sized system that is able to utilise as much energy as possible.
- Ensure the CHP system in place is the primary heat source at all times.
- Ensure the system is calibrated and compliant with CHPQA standards.
- Have structured and reliable maintenance and servicing strategy.
- Keep a record of all data available.
So, in order to gain this coveted ‘Good Quality’ assessment and achieve discounts on your going rates, it pays to have a structured reporting system in progress. And, it’s worth investing in the support and advice of a professional CHP company during the design, supply and installation process.
Is CHP right for my business?
As we’ve mentioned before, CHP systems are a significant financial investment for many businesses. They are generally used in buildings where the heat and power combined is required for more than 4,000 hours per year. Those companies that are liable for the Climate Change Levy won’t just see this specific fee reduced. Due to a percentage of a building’s electricity being generated from mains fed gas, there is also a significant drop in energy fees.
It can also be a practical and time-effective way of upgrading an existing system. When you choose packaged CHP solutions, they can be installed as one package and integrated into your current heating setup. And, businesses utilising CHP solutions can claim for Enhanced Capital Allowance, permitting them to a 100% offset of the capital costs of the technologies against tax in the first year. Saving like this could reduce capital cost by up to 8% over the CHP’s lifespan.
An awareness of the ways in which your business can choose to be both cost-effective and sustainable combined to create the best solution for heating and power. The Climate Change Levy is in place to help protect the environment around us and persuade reluctant companies. It entirely incentives the act of re-hauling heating technology in a building and opting for one with lower carbon emissions and a smaller footprint. And, as a business, this sort of drive gives you an edge over the competition in a world where consumers are becoming continuously more aware of corporate environmental impact.
Speak to a member of the Energimizer team for more information today.