Climate change levy (CCL)
CCL is a single-stage non-deductible tax with environmental objectives that was introduced on 1 April 2001 as part of the UK’s Climate Change Programme. CCL is charged on supplies of energy products to industrial and commercial users. It applies to:
- natural gas;
- coal and coke; and
- liquefied petroleum gas (other than that used as a road fuel).
There are three categories of supply where the full rate of levy does not apply:
- excluded - domestic; for the non-business use of a charity; and supplies made before 1 April 2001;
- exemptions - for use in some forms of transport; export; to producers of energy products and electricity from renewable sources for example; and
- reduced rate - a 65% reduction on supplies to energy-intensive facilities covered by climate change agreements (CCA) administered by the Department for Energy and Climate Change (DECC).
Relationship with VAT
VAT is chargeable on the CCL-inclusive value of a supply.
Supplies for domestic use and charity non-business use are excluded from CCL. Where possible, the statutory VAT provisions for domestic use have been mirrored within CCL legislation. This includes the deeming provisions (VFUP2310), as well as the 60% rule (VFUP2520). Thus supplies that are reduced-rated for VAT purposes are, in general, not liable to CCL.
The relief mechanism for part domestic/part business energy use is the VAT certificate (VFUP2530). The VAT certificate enables the customer to gain relief from both VAT and CCL. Therefore, if tax has been underdeclared for VAT, there will normally be an underdeclaration for CCL. As CCL is a single-stage non-deductible tax, any underdeclaration of CCL arising from an incorrect claim to relief represents a true loss of revenue.
The similarities in legislation mean that disputes about VAT liability have been more commonplace since the introduction of CCL (see the Tribunal decision in VFUP2350). Customers who are able to fully recover VAT charged at the standard rate on supplies of fuel and power are now looking more critically at the VAT liability to determine whether certain supplies should be reduced-rated, and thus not subject to CCL.
If, having been previously underdeclared, CCL is subsequently charged, and the VAT is also to be adjusted, the value for VAT purposes will increase by the amount of CCL involved.
Guidance on CCL can be found in Notice CCL1: A general guide to climate change levy and its related notices.