Energy tax guide - understanding CCL, VAT, UK ETS and the EII levy 

Take a close look at your business energy bill, and you'll likely find charges beyond your basic unit rate that are easy to overlook. Some are unavoidable. Some aren't. 

As a business owner, you’ll appreciate that figuring out taxes can be complicated. When it comes to energy, you need to consider very techy-sounding things like carbon pricing mechanisms and relief schemes, alongside VAT.  

If you understand what these are and how they affect you, you'll be better placed to reduce your exposure to them. This guide cuts through the complexity of the Climate Change Levy, VAT on business energy, the UK Emissions Trading Scheme, and Energy Intensive Industry reliefs, so you know exactly where you stand. 

Five-point summary on business energy and taxes 

1. The Climate Change Levy is an environmental tax on most non‑domestic energy use, with some exemptions and discounts through schemes like Climate Change Agreements, and it appears as a separate line on eligible energy bills. 
2. VAT on business energy is normally charged at 20%, but certain domestic and charity non‑business uses can qualify for a reduced 5% rate, which often needs to be claimed by submitting the right declaration to your supplier. 
3. The UK ETS is a cap‑and‑trade carbon pricing system for larger emitters in industry, power and aviation, and some energy‑intensive manufacturers may be able to access compensation for indirect electricity cost impacts through government schemes. 
4. Energy Intensive Industries can apply for exemption certificates and network charging compensation, subject to sector and electricity intensity tests, which can significantly reduce certain policy and network costs on their electricity bills. 
5. Because the rules, rates and eligibility criteria for CCL, VAT, UK ETS and EII schemes change over time, most organisations benefit from tracking official guidance and working with professional advisers to understand how these frameworks affect their specific sites and contracts 

What is the Climate Change Levy (CCL) in simple terms? 

The Climate Change Levy (CCL) is an environmental tax on energy used by UK businesses in industrial, commercial, agricultural, and public sectors.  

It’s designed to encourage lower energy use and carbon emissions. It applies to taxable supplies of electricity, gas, LPG and some solid fuels used for lighting, heating and power, but it does not apply to domestic or non‑business charity use. 

Some energy supplies are fully exempt from CCL, including: 

• Energy that is not used or not burned in the UK (such as certain exports) 
• Specific transport uses 
• Energy used to produce other taxable commodities to avoid double taxation 
• Electricity from good‑quality combined heat and power 
• Some supplies to electricity producers or small generators 
• Non‑fuel uses, such as electrolytic processes, where the customer has provided the relevant PP10 and PP11 forms.  

CCL is usually shown as a separate line on your business energy bill, charged per kWh at rates that are set by the government and can change each tax year. 

Climate Change Agreements (CCAs) are voluntary deals between energy‑intensive sectors and regulators where eligible sites commit to meeting energy or carbon reduction targets in return for significantly discounted CCL rates.  

Eligibility normally depends on your industry sector (using SIC codes), energy intensity and compliance with scheme rules, and claims are made through agreed processes using forms such as PP10 (supporting analysis) and PP11 (supplier certificates) that are submitted via your energy supplier. 

VAT on business energy 

In the UK, the standard VAT rate is 20%. This is usually applied to business gas and electricity supplies. But fuel and power can be charged at a reduced 5% VAT rate where certain qualifying conditions apply, mainly for domestic use and specific charity non‑business activities. 

For businesses, the key questions are whether any part of your supply qualifies for the reduced rate (for example, mixed‑use premises with domestic elements or eligible charity use) and whether the right rate is being applied.  

Suppliers don’t always automatically apply a reduced rate. Customers who may be eligible often need to complete a declaration or application to their supplier to confirm usage and claim the correct VAT treatment. 

VAT‑registered businesses might be able to reclaim VAT on eligible business costs, including energy, as part of their VAT returns, subject to HMRC rules.  

For more information, check out our guide to VAT on business energy. 

What are UK emissions trading scheme (UK ETS)? 

The UK Emissions Trading Scheme (UK ETS) is the UK’s cap‑and‑trade carbon pricing system, which replaced the UK’s participation in the European Union Emissions Trading System (EU ETS).  

It applies mainly to large energy‑intensive industrial sites, power generators and aviation operators, requiring them to monitor their greenhouse gas emissions, hold permits and surrender allowances for each tonne of CO2 equivalent they emit within the scheme. 

In practice, organisations covered by UK ETS need a greenhouse gas emissions permit or emissions monitoring plan, must track and verify emissions annually and then buy, receive or trade allowances to match their verified emissions.  

The government and regulators set free allocation rules, thresholds and sector coverage. These can change over time, so in‑scope operators typically follow the official UK ETS guidance closely or work with specialist compliance advisers. 

There is also a government compensation scheme that can help certain energy‑intensive manufacturing sectors with the indirect costs of UK ETS and Carbon Price Support, where higher electricity prices are partly driven by carbon costs passed through the power market.  

Eligibility for this type of support usually depends on operating within specified SIC sectors, meeting a minimum indirect cost exposure test (sometimes referred to as a percentage filter test) and submitting an application through the government’s dedicated process.  

Carbin Price Support is set to be removed from April 2028. 

Energy intensive industries and the EII levy and reliefs 

Energy Intensive Industries (EIIs) are businesses whose processes use a large amount of electricity relative to their output, often in sectors such as chemicals, metals, glass, cement and some segments of food production and engineering.  

These businesses can face relatively high policy and network cost impacts in their energy bills, so the UK government has developed schemes to provide relief on certain charges, sometimes referred to collectively as EII exemptions or compensation. 

EII schemes can reduce or exempt qualifying usage from parts of the costs that fund renewable support mechanisms and capacity payments, such as the RAB Nuclear Levy, Renewables Obligation, Feed‑in Tariffs and the Capacity Market. 

They can also offer compensation on network charges under the Network Charging Compensation (NCC) scheme.  

To access these benefits, eligible EIIs normally need an EII certificate that confirms they have passed a sector‑level test (for example, having an eligible NACE or SIC code), a business‑level electricity intensity test and other data and reporting requirements set out in government guidance. 

The NCC scheme and related “British Industry Supercharger” measures aim to bring the effective electricity prices for eligible EIIs closer to those faced by competitors in other countries by increasing exemptions from certain levies and offering targeted network charge compensation.  

An uplift to the British Energy Supercharger scheme has been proposed. You can read more about this at the government website. 

Because eligibility tests and relief levels can change, large industrial users often monitor policy updates and, where relevant, work with specialist consultants or trade bodies to understand how the rules apply to their sites. 

The Green Gas Levy (GGL)

The Green Gas Levy is a government charge that was introduced in November 2021. It funds the Green Gas Support Scheme (GGSS), which incentivises the production of biomethane (green gas) and its injection into the national grid, forming part of the UK's push towards net zero by 2050.

Legally, the levy is charged to licensed fossil fuel gas suppliers, who pay it to Ofgem quarterly. But suppliers pass the cost on to their customers by building it into unit rates or standing charges. This means businesses effectively foot the bill through their energy tariffs. The levy has risen sharply in recent years, climbing from 0.105p per meter per day in 2024/25 to 0.821p in 2025/26.

It's worth noting that suppliers who can prove they provide at least 95% green gas to their customers may be exempt from paying the levy. For everyone else, the GGL is one of several government charges bundled into your business energy bill. It's relatively small in isolation, but worth understanding as part of the bigger picture of what drives your energy costs.

How do these taxes and schemes show up on your bill? 

From a practical billing point of view, CCL and VAT will usually appear as separate lines or totals on your gas and electricity invoices. The costs associated with UK ETS, EII schemes and other policy mechanisms are often bundled into your unit rates or pass‑through charges.  

For many smaller and medium‑sized businesses, it's important to check that the right CCL and VAT rates are being applied. You also need to make sure the tax status of any charity or mixed‑use supply has been correctly recorded by the supplier. 

Larger energy users and energy‑intensive sites may have more complex contracts where elements such as CCL, environmental levies and certain network charges are itemised or passed through separately. 

In these cases, understanding how energy taxes, policy costs and reliefs interact with your consumption profile and contract structure can be an important part of managing overall energy spend and forecasting future costs. 

Whatever your size, keeping clear records of your energy use, business activities, SIC codes, and any declarations or certificates submitted to suppliers or government schemes can make it easier to respond to queries or compliance checks.  

It can also help you and your professional advisers quickly identify whether you're being billed in line with the latest rules or if anything needs to be queried with your supplier or with HMRC. 

How Bionic can help 

Bionic cannot give tax, legal or regulated financial advice, but it can help your business make sense of the energy part of this picture and connect you with suitable support where needed.  

Our specialists compare deals from a panel of trusted UK business energy suppliers, talk you through your options in plain English and help you understand how different contract structures handle non‑commodity costs and policy‑related costs on your bills.  

With just your business name and postcode, we can start gathering the information needed to find energy contracts that suit your usage and risk preferences, while you work with your accountant or adviser on the tax and compliance side – so you spend less time on admin and more time running your business. 

FAQs on taxes and levies on your energy bills 

Still unsure about CCL, VAT, UK ETS and the EII levy? Check out the answers to our most frequently asked questions: 

Do sole traders and partnerships pay the Climate Change Levy in the same way as limited companies? 

Yes. CCL applies based on how the energy is used, not the legal structure of the business, so sole traders and partnerships using energy for commercial purposes are liable in the same way as limited companies. 

Can a business claim back overpaid Climate Change Levy if the wrong rate was applied in previous billing periods? 

Yes. Businesses can raise a dispute with their supplier and, where an error is confirmed, may be able to recover overpaid CCL, though time limits and supplier processes will apply. 

Does the UK ETS affect the price businesses pay for electricity even if they are not directly covered by the scheme? 

Yes. Because large power generators must purchase allowances under the UK ETS, the carbon cost is typically passed through into wholesale electricity prices, indirectly raising bills for all electricity consumers. 

Is there a minimum energy spend or consumption threshold before CCL applies to a business? 

No. CCL applies to all qualifying non-domestic energy use regardless of volume, so even very small businesses consuming modest amounts of electricity or gas are liable if the supply meets the taxable conditions. 

Are businesses that operate from home eligible for the reduced 5% VAT rate on their energy? 

A home-based business may qualify for the 5% rate on the portion of energy used for domestic purposes, but the business-use element would typically remain subject to 20% VAT. 

How does the British Industry Supercharger differ from a standard EII exemption certificate? 

The British Industry Supercharger is a package of measures that builds on EII exemptions by also targeting network charge compensation, going further than a standard exemption certificate alone in reducing the overall electricity cost burden for eligible businesses. 

Can a business lose its EII exemption status once it has been granted? 

Yes. EII certificates are subject to ongoing compliance, and a business that no longer meets the sector or electricity intensity criteria at reassessment can have its exemption withdrawn. 

Will the removal of Carbon Price Support in April 2028 reduce electricity costs for UK businesses? 

Possibly. Since Carbon Price Support contributes to the carbon cost that generators pass through into wholesale electricity prices, its removal could ease some of the upward pressure on business electricity bills from 2028 onwards. 

^{Important note on information, not advice} 

^{This guide is here to help you make sense of the main UK energy taxes and schemes, like CCL, VAT, UK ETS and EII reliefs, in clear, everyday language. It walks through what each one is, how they might show up on your energy bills, and the key questions you might want to ask your supplier or professional adviser. It is designed to give you confidence and a bit more clarity, not to tell you what to do in your specific situation. This guide is for general information only and does not constitute tax, legal, investment or regulated financial advice, so you should always speak to a qualified adviser – such as your accountant, tax adviser or legal adviser – before making decisions about tax, reliefs or regulatory schemes.}