The Climate Change Levy (CCL) is a UK environmental tax designed to encourage greater energy efficiency and reduce carbon emissions from businesses and the public sector. It is applied to the supply of taxable commodities, such as electricity, gas, and certain solid fuels, when used for non-domestic purposes. Since its introduction in 2001, the levy has become a significant part of the government’s environmental tax strategy, sitting alongside measures such as the Carbon Price Support (CPS) rates and Climate Change Agreements (CCAs). The CCL regime applies UK-wide; administration and CCA oversight involve national regulators (for example, the Environment Agency in England, the Scottish Environment Protection Agency (SEPA), Natural Resources Wales (NRW), and the Department of Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland).
What this article is about
This article provides a comprehensive guide to the Climate Change Levy from a UK tax perspective. It explains which supplies and businesses fall within the scope of the levy, the current 2025/26 rates and how they are applied, the reliefs and exemptions available, and how CCAs operate to reduce liability. It also examines compliance duties for businesses, including registration, returns, and payment requirements, and highlights upcoming changes such as the 2026 uprating and the next CCA phase. The aim is to help finance directors, business owners, and HR leaders understand the impact of CCL on energy costs, ensure accurate compliance, and make informed budgeting decisions.
Section A: Scope, liability, and how CCL works
The Climate Change Levy applies to the supply of specific taxable commodities for non-domestic use. Businesses need to understand exactly when the levy arises, who is liable, and how it is charged on energy bills. This section outlines the scope of the levy, the legal responsibilities of suppliers, and the differences between main rates and Carbon Price Support (CPS) rates.
1. Taxable commodities and supply rules
The levy is chargeable on the supply of four categories of taxable commodities:
- Electricity, measured in kilowatt hours (kWh)
- Natural gas supplied in a gaseous state, measured in kWh
- Liquefied petroleum gas (LPG), measured in kilograms
- Other taxable solid fuels such as coal and coke, also measured in kilograms
The levy applies when these commodities are supplied to business and public sector consumers in the UK. The supplier of the commodity is responsible for charging the levy on the customer’s bill and accounting for it to HMRC.
CPS rates apply separately to generators and combined heat and power (CHP) stations that use taxable commodities to produce electricity. These rates, introduced in 2013, are designed to incentivise cleaner energy generation and align with the UK’s carbon reduction goals. CPS rates are currently frozen until March 2027, giving medium-term certainty for generators.
2. Who pays the levy?
Although suppliers account for the levy, the economic burden falls on the end user of the taxable commodity. CCL is generally charged on all non-domestic use, including industrial, commercial, and public sector energy consumption.
Exclusions include domestic premises and non-business use by charities, which are outside the scope of the levy. Charities must be able to demonstrate that energy is used solely for non-business purposes to qualify. Certain small-scale supplies can also qualify for the “de minimis” rule, treating them as domestic use and therefore exempt from CCL. For example, small supplies of gas not exceeding 4,397 kWh per month or electricity not exceeding 1,000 kWh per month are exempt. These thresholds apply per premises, per month, and suppliers are responsible for applying them correctly.
3. How CCL is shown and collected
For businesses within scope, CCL is charged by the supplier and appears as a separate line item on energy bills, in addition to VAT. This makes it easier for organisations to distinguish levy costs from the underlying commodity charge.
If errors occur — for example, if reliefs are not applied correctly — suppliers can adjust bills and issue corrected invoices. Businesses should check their energy bills regularly to confirm the correct rate of CCL is being applied, especially if reliefs are claimed through forms PP10 or PP11.
Section Summary
The Climate Change Levy applies to taxable commodities such as electricity, gas, LPG, and solid fuels when supplied for non-domestic use. Suppliers are responsible for charging and remitting the levy, but businesses ultimately bear the cost. Domestic use, certain charity supplies, and small-scale consumption are exempt. The levy is shown separately on bills, and businesses should monitor invoices carefully to ensure the correct charges are applied.
Section B: Rates and calculations (2025/26)
Climate Change Levy rates are set by the UK government and change on 1 April each year. Understanding the applicable rates and how they are applied is vital for accurate budgeting and compliance. For 2025/26, the levy continues to distinguish between main rates on supplies to end users and Carbon Price Support (CPS) rates for generators. Climate Change Agreements (CCAs) can also deliver significant discounts for eligible businesses.
1. Main rates of CCL
The main rates apply to taxable commodities supplied to non-domestic customers. From 1 April 2025, the following rates are in force across the UK:
- Electricity: £0.00775 per kWh
- Natural gas: £0.00452 per kWh
- LPG: £0.02175 per kg
- Other taxable solid fuels: £0.06064 per kg
The government has confirmed that from 1 April 2026, the main rates will rise in line with uprating policy, giving businesses a forward view for budgeting purposes.
2. CCA reduced rates
Businesses with a Climate Change Agreement can access reduced rates of CCL if they meet energy efficiency or carbon reduction targets. These discounts are substantial and apply directly to bills:
- Electricity: 92% reduction
- Natural gas: 89% reduction
- LPG: 77% reduction
- Other taxable solid fuels: 77% reduction
CCAs are sector-based and administered through umbrella agreements (for example, by trade associations) under the oversight of the Environment Agency and devolved administrations. For energy-intensive industries, securing and maintaining a CCA can dramatically reduce levy costs, freeing up cash flow and supporting competitiveness.
3. Carbon Price Support (CPS) rates
CPS rates apply to supplies of taxable commodities used in electricity generation, including CHP stations. The CPS is designed to incentivise low-carbon generation by raising the cost of using fossil fuels to produce electricity.
Rates are charged per kWh or kg of input fuel. CPS rates for 2025/26 are aligned with the HM Treasury schedule and are frozen until 31 March 2027. These rates are higher than main rates, reflecting the additional environmental objective of shifting energy generation away from carbon-intensive fuels.
4. Worked examples
To illustrate how CCL applies in practice:
- A manufacturing company consumes 100,000 kWh of electricity in a month. At £0.00775 per kWh, the levy would amount to £775 before VAT.
- If the same company has a CCA in place, the 92% discount reduces the levy to £62, demonstrating the value of the scheme.
- For a business using 10,000 kg of LPG, the levy at £0.02175 per kg would be £217.50 unless reliefs or discounts apply.
Worked examples help businesses check supplier billing and forecast the impact of rate changes on energy costs.
Section Summary
For 2025/26, the main rates of CCL are £0.00775 per kWh for electricity, £0.00452 per kWh for natural gas, £0.02175 per kg for LPG, and £0.06064 per kg for other solid fuels. CPS rates apply to electricity generation and are higher, while CCA discounts offer significant reductions for eligible businesses. Accurate application of these rates is key for compliance and for managing energy budgets.
Section C: Exemptions, reliefs, and Climate Change Agreements (CCA)
While the Climate Change Levy is broadly applied, a number of exemptions and reliefs are available. These measures ensure that certain categories of energy use are excluded from the levy or attract a reduced rate. For many organisations, especially in energy-intensive industries, Climate Change Agreements (CCAs) provide an important mechanism to cut costs while driving efficiency improvements.
1. Reliefs and exclusions
CCL is not chargeable in the following cases:
- Domestic use: Energy supplied for use in homes and other residential accommodation, such as care homes, student halls, and armed forces accommodation.
- Charity non-business use: Supplies made to charities for non-business purposes are exempt. Charities must be able to demonstrate that the energy is used solely for non-business activities.
- De minimis supplies: Small quantities of energy are treated as domestic use and fall outside CCL. Examples include gas not exceeding 4,397 kWh per month and electricity not exceeding 1,000 kWh per month. These limits apply per premises, per month.
- Metallurgical and mineralogical processes: Supplies of energy used directly in qualifying processes, such as metal smelting or certain ceramics manufacturing, are eligible for relief.
- Combined Heat and Power (CHP): Energy used in “Good Quality CHP” schemes can be relieved to avoid double taxation where output already benefits from environmental incentives.
Suppliers must be satisfied that a customer is eligible for relief and may require formal certification.
2. Claiming reliefs
To claim CCL reliefs, businesses must provide suppliers with the correct HMRC forms:
- Form PP10: Used to calculate the proportion of energy eligible for relief, setting out the supporting analysis.
- Form PP11: The certificate given to suppliers, confirming the customer’s entitlement to relief.
Suppliers then apply the relief to bills going forward. Reliefs cannot be applied retrospectively by suppliers unless a valid PP11 is in place. Backdating is possible up to four years but requires HMRC agreement and sufficient evidence. Businesses should ensure renewal of certificates where required and maintain robust records to evidence eligibility during HMRC audits.
3. Climate Change Agreements (CCAs)
CCAs are voluntary agreements between energy-intensive sectors and the Environment Agency (or devolved administrations). By signing up to a CCA, businesses commit to energy efficiency or carbon reduction targets. In return, they receive significant discounts on CCL — currently 92% on electricity and 89% on gas, with slightly lower discounts on LPG and other solid fuels.
CCAs are administered through umbrella agreements, often managed by trade associations, which negotiate targets with the regulators. The government has confirmed that a new phase of the CCA scheme will open on 1 January 2026 and run until 2033. Participants will agree to new targets, with reduced rates available until March 2033. Businesses in eligible sectors should prepare by reviewing historic energy data, assessing target achievability, and ensuring governance processes are in place to manage compliance with CCA obligations.
Section Summary
Not all energy use is subject to CCL. Reliefs are available for domestic use, charitable non-business use, small supplies, metallurgical and mineralogical processes, and qualifying CHP schemes. Businesses must claim reliefs using HMRC forms PP10 and PP11 and keep evidence for audit. For energy-intensive industries, Climate Change Agreements offer substantial CCL discounts in exchange for meeting efficiency targets, with a new scheme phase beginning in January 2026.
Section D: Compliance, reporting, and controls
Compliance with the Climate Change Levy is shared between energy suppliers, who are legally responsible for charging and accounting for the levy, and business customers, who must ensure that bills are correct and that any reliefs are validly claimed. This section explains the administrative framework, including registration and returns, handling errors, and forward planning.
1. Registration, returns, and payments
Energy suppliers and certain generators are required to register with HMRC for CCL purposes. Once registered, they must submit returns, typically on a quarterly basis, setting out the amount of levy charged to customers and payable to HMRC.
Returns are made on form CCL100, and registered businesses must keep supporting records for at least six years. Payments are due in line with HMRC’s deadlines, and late payment can result in interest and penalties. Businesses that generate electricity, particularly through CHP plants, may also need to register separately for CPS liabilities.
For end users, while there is no registration requirement, finance teams should understand their obligations where reliefs are claimed. Forms PP10 and PP11 must be lodged with suppliers and updated as necessary to maintain relief entitlement.
2. Correcting errors and managing HMRC audits
If an energy supplier charges CCL incorrectly — for example, by failing to apply a relief or applying it without proper certification — adjustments must be made to bills and subsequent returns.
HMRC has audit powers to review compliance with CCL rules. This can include checking whether suppliers have accounted for the right amounts, and whether customers claiming reliefs have appropriate evidence on file. Failure to comply can result in assessments, penalties, and interest charges. HMRC penalties for CCL follow the excise duty model, covering failures to account correctly, inaccurate returns, or inadequate record-keeping.
Businesses should therefore implement internal controls to track energy consumption, relief certificates, and supplier billing accuracy.
3. Budgeting and forecasting
Because CCL rates change on 1 April each year, organisations should align their financial planning with the tax year rather than the calendar year. The government has already confirmed that rates will increase again from April 2026.
Finance leaders should run scenarios based on projected energy consumption, relief eligibility, and whether CCA participation will continue. CPS rates are frozen until March 2027, providing medium-term stability for budgeting in energy generation. This ensures that the impact of the levy on operational budgets is well understood, and that any increases in levy liability can be forecast and managed.
Section Summary
Suppliers and generators must register with HMRC, file returns on form CCL100, and account for CCL liabilities, while customers must ensure relief claims are accurate and supported by evidence. Records must be kept for six years. Errors must be corrected promptly, with HMRC empowered to audit both suppliers and users. Rate changes occur every April, so organisations should align budgets to the fiscal cycle and prepare for confirmed rate rises in 2026. CPS rates remain frozen until 2027. Strong internal controls and supplier oversight reduce the risk of overpayment or compliance failures.
FAQs
1) Who actually pays the Climate Change Levy and who collects it?
Energy suppliers are responsible for charging CCL on bills and paying it to HMRC. The cost, however, is borne by business and public sector customers as part of their energy invoices.
2) Are SMEs under the de minimis threshold automatically exempt?
Yes. Small-scale supplies, such as electricity up to 1,000 kWh per month or gas up to 4,397 kWh per month, are treated as domestic use and do not attract CCL. These thresholds apply per premises, per month, and suppliers are expected to apply them automatically.
3) How do CCA discounts work?
Businesses with a Climate Change Agreement can obtain significant discounts — currently 92% off electricity and 89% off gas — provided they meet energy efficiency or carbon reduction targets. The discount is applied directly by the supplier once entitlement is certified under an umbrella sector agreement.
4) What is the difference between main rates and CPS rates?
Main rates apply to non-domestic supplies of taxable commodities. CPS rates are higher and apply to fuels used in electricity generation, including by CHP operators, to encourage cleaner energy production. CPS rates are frozen until March 2027.
5) Can we backdate a relief claim if we missed submitting PP11?
Yes. Reliefs can normally be backdated for up to four years, provided that the business can supply the necessary PP10 analysis and PP11 certification to its energy supplier. However, suppliers cannot apply reliefs retrospectively unless a valid PP11 is in place; HMRC approval and evidence are required for backdating.
6) How does CCL interact with VAT on energy?
CCL is charged in addition to VAT. It appears as a separate line item on invoices, but VAT is applied on the total bill, which includes both the commodity charge and the levy.
7) What changes are expected from 2026?
From 1 April 2026, CCL main rates will increase in line with uprating policy. A new phase of the Climate Change Agreement scheme will also begin on 1 January 2026, running until March 2033, with new energy efficiency targets for participants.
8) What records should businesses keep for reliefs and CCAs?
Businesses should retain copies of PP10 calculations, PP11 certificates submitted to suppliers, supporting energy usage data, and evidence of meeting CCA targets. Records must be retained for at least six years and may be requested during an HMRC audit.
Conclusion
The Climate Change Levy remains a core part of the UK’s environmental tax framework, directly influencing business energy costs. It applies to most non-domestic supplies of electricity, gas, LPG, and solid fuels, and appears as a separate line on energy invoices. While suppliers are responsible for charging and accounting for the levy, the cost is ultimately borne by business users, making accurate oversight essential.
For many organisations, particularly those in energy-intensive sectors, reliefs and Climate Change Agreements provide valuable opportunities to reduce liability. The correct use of forms PP10 and PP11 ensures that exemptions are properly applied, while CCAs deliver significant discounts in exchange for meeting efficiency targets. CCAs are administered via sector-based umbrella agreements, and a new phase of the scheme will commence in January 2026, running to March 2033.
From a compliance perspective, businesses should review supplier billing, ensure evidence for any reliefs is kept up to date, and anticipate rate changes each April. With a confirmed uprating from April 2026 and CPS rates frozen until March 2027, finance directors and business leaders should align budgets and operational planning accordingly.
In summary, effective management of CCL requires a clear understanding of scope, rates, reliefs, and compliance processes. By taking proactive steps to monitor energy usage, claim reliefs, and participate in CCAs, businesses can manage levy costs while contributing to the UK’s carbon reduction commitments.
Glossary
| Climate Change Levy (CCL) | A UK environmental tax on non-domestic supplies of electricity, gas, LPG, and solid fuels, designed to encourage energy efficiency. |
| Carbon Price Support (CPS) | A higher rate of levy applied to fossil fuels used in electricity generation, including CHP, to incentivise lower-carbon energy production. CPS rates are frozen until March 2027. |
| Climate Change Agreement (CCA) | A voluntary scheme allowing energy-intensive businesses to obtain significant CCL discounts in return for meeting energy efficiency or carbon reduction targets. Administered via sector umbrella agreements overseen by the Environment Agency and devolved administrations. |
| De minimis | Thresholds that treat small supplies of electricity or gas as domestic use, exempting them from CCL. The limits apply per premises, per month. |
| PP10 | HMRC form used to calculate the proportion of energy eligible for CCL relief, providing supporting analysis. |
| PP11 | HMRC certificate submitted to energy suppliers to claim reliefs from CCL. A valid PP11 must be in place before suppliers can apply reliefs. |
| Good Quality CHP | Combined Heat and Power schemes that meet specific efficiency standards, qualifying for CCL reliefs to avoid double taxation. |
Useful Links
| Climate Change Levy rates (main and CPS) | GOV.UK – Climate Change Levy rates |
| Exemptions and reliefs overview | GOV.UK – Climate Change Levy reliefs and exemptions |
| Excise Notice CCL1/3: reliefs and special treatments | GOV.UK – CCL1/3 |
| Climate Change Levy forms (PP10, PP11, returns) | GOV.UK – CCL forms |
| Submit returns for CCL | GOV.UK – Submit a return for CCL |
| Pay CCL | GOV.UK – Pay your Climate Change Levy |
| Climate Change Agreements scheme guidance | GOV.UK – Climate Change Agreements |
| Consultation and new scheme updates | GOV.UK – Consultation on Climate Change Agreements |
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
