04.12.2024

Understanding VAT and CCL in Electricity and Gas Supplies

In this guide, we provide a comprehensive explanation of the rates at which Value Added Tax (VAT) and Climate Change Levy (CCL) are chargeable on electricity and gas supplies for business

 

Value Added Tax (VAT)

In compliance with the current legislation (VAT Act 1994 as amended), two rates of VAT are applicable to supplies of electricity and gas used for business or non-domestic purposes:

• the standard rate and
• the reduced rate.

When an electricity or gas supply is utilized wholly or partly for domestic or charitable non-business use, that portion of the supply qualifies for the reduced rate of VAT, known as ‘qualifying use‘. Customers with qualifying use must submit a separate Customer Declaration Certificate for each supply to specify the percentage used for domestic or charitable non-business purposes.

Climate Change Levy (CCL)

The Climate Change Levy (CCL) is a government-imposed tax aimed at encouraging the reduction of gas emissions and promoting greater energy efficiency for business or non-domestic purposes. CCL is only chargeable on units/kWh used and is not applied to any other components of the bill such as fixed daily charges. Separate rates are defined for electricity and gas, indexed-linked and likely to increase annually on 1st April.

Under the current legislation, the following rules are applied:

• When VAT is charged at the standard rate, CCL (plus VAT on CCL) is generally added to the bill.
• Where VAT is charged at the reduced rate, the supply is automatically exempt from CCL.
• These rules are automatically applied at the time of billing. Business customers entitled to CCL relief must submit a PP11 Supplier Certificate for each covered supply.

Understanding the intricacies of VAT and CCL in electricity and gas supplies is crucial for businesses seeking to optimize their energy expenditure. By gaining a comprehensive understanding of these regulatory aspects, organizations can make informed decisions and navigate the complexities of energy cost management effectively.