Molly Ayala
The standard UK VAT rate for businesses is 20%, but some organisations are eligible for a discounted rate of 5%. This reduced rate is applicable to businesses that consume small amounts of electricity, such as charities, non-profits, and those working from home. To qualify for the discounted rate, businesses must meet certain conditions, such as having a small-scale energy use of less than 33 kWh of electricity per day or having at least 60% of their energy used for residential or charitable non-business activities. It's important to note that the reduction is not automatically applied, and businesses must apply for the discount separately by submitting a VAT reduction application or declaration form.
| Characteristics | Values |
|---|---|
| Energy consumption | Less than 4,397 kWh of gas/1,000 kWh of electricity per month or 145 kWh of gas/33 kWh of electricity per day |
| Type of organisation | Registered charity, non-profit organisation or a small business |
| Nature of activities | Non-business activities, e.g. free daycare for disabled people |
| Type of premises | Residential accommodation, e.g. elderly care home, children's home, student accommodation, places of rehabilitation, care homes, monasteries, nunneries |
| Proportion of energy used | At least 60% of the energy is used for residential accommodation or charitable non-business activities |
| Energy usage | Classed as 'small-scale' or 'low usage' |
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What You'll Learn
Charities and non-profits
To qualify for the reduced rate, a charity must meet at least one of the following conditions:
- At least 60% of the energy used is for residential accommodation, such as an elderly care home or a children's home.
- At least 60% of the energy is used for charitable non-business activities, such as free daycare for disabled people.
- The energy use is classed as "small-scale", defined as less than 33 kWh of electricity per day (1,000 kWh a month) and less than 145 kWh of gas per day (4,397 kWh a month).
If a charity believes it qualifies for the reduced rate, it will need to apply for it separately. This can be done by filling in a VAT declaration form, which can be obtained by contacting the energy supplier. If a charity has different suppliers for gas and electricity, a separate form will need to be filled out for each. It is important to note that the discount is not applied automatically, so the supplier will charge the standard 20% VAT rate until informed otherwise.
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Small-scale energy use
In certain jurisdictions, small-scale energy users may be eligible for a reduced VAT rate on their electricity consumption. This incentive is often designed to provide relief to those who consume a lower amount of energy and can help reduce the financial burden associated with electricity costs.
To qualify for a reduced VAT rate, small-scale energy users may need to meet specific criteria, which can vary depending on the country or region. In some cases, the eligibility may be determined by the amount of electricity consumed, with a threshold set to define what constitutes small-scale usage. Additionally, small businesses that consume electricity for non-domestic purposes may also qualify for reduced VAT rates, with eligibility criteria that differ from domestic users.
It's important for small-scale energy users to stay informed about the requirements and conditions set by local authorities or utility providers to determine their eligibility for reduced rates. These details are often accessible through official channels, such as government or utility company websites, providing clear guidance on the criteria and any necessary steps for qualification. Staying aware of such incentives can empower small-scale energy users to manage their electricity costs effectively.
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Residential accommodation
The standard UK VAT rate is 20%, but some businesses are eligible for a discount and can pay a reduced rate of 5%.
If you run a business from home, you will pay the discounted 5% rate, which is the same as the VAT rate on energy bills for UK households, as long as you do not go over the 'de minimis' thresholds. De minimis levels are defined as 33 kWh of electricity per day (1,000 kWh a month) and 145 kWh of gas per day (4,397 kWh a month).
VAT on domestic energy is charged at 5%, which is the rate you will pay if you work from home. If you work remotely and have low energy usage, you might benefit from the lower rates offered by a business energy tariff, along with the 5% VAT rate. To switch to a business energy deal when working from home, you will need to prove that at least 50% of your household's energy usage is for business purposes.
Local authority tenants do not pay VAT when paying for heated accommodation. If a local authority supplies gas or electricity that is not linked to accommodation, VAT is charged at the reduced rate.
Gas and electricity supplied by landlords other than local authorities as part of a supply of heated, air-conditioned, or cooled accommodation is treated as a single supply of accommodation when a fixed charge is made to cover the gas and/or electricity. The rent charged for domestic accommodation is exempt from VAT, and the charge for gas and/or electricity is therefore also exempt from VAT. If tenants are separately charged for metered supplies, the supply of gas/electricity will be subject to VAT and will be reduced-rated when supplied for domestic use or in small quantities.
If at least 60% of your business's energy is used for residential accommodation, such as a care home, you will pay 5% VAT on energy.
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Working from home
If you work from home, you may be eligible for a reduced VAT rate of 5% on your energy bills. This is the same rate that UK households pay for their energy usage. However, it's important to note that this reduced rate only applies if your energy consumption remains below the 'de minimis' threshold.
The 'de minimis' threshold refers to a specific level of energy consumption set by HM Revenue and Customs. If your energy usage falls below this threshold, it is considered domestic use and is eligible for the reduced 5% VAT rate. Specifically, your electricity consumption should not exceed 33 kWh per day or 1,000 kWh per month.
To switch to a business energy tariff and take advantage of the 5% VAT rate, you must demonstrate that a significant portion of your household's energy usage is dedicated to business purposes. This typically means proving that at least 50% of your energy usage is for business-related activities.
It's worth noting that the reduced VAT rate should be applied automatically by your energy supplier. However, it is always recommended to carefully review your bills to ensure you are being charged the correct rate. If you find that you are eligible for the discounted rate but are still being charged the higher rate, you should contact your supplier directly to address this issue.
Additionally, if you are a registered charity or non-profit organisation, you may be eligible for further VAT discounts. To confirm your eligibility and apply for these reductions, you will typically need to submit a VAT declaration form or a valid exemption certificate to the relevant authorities.
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Applying for a reduction
If your business is eligible for a reduced rate of VAT but is being charged at the full rate, you can submit a VAT reduction application to your business electricity or commercial gas supplier. The application process varies slightly by supplier.
For example, to apply with British Gas Business Energy, you can use their online portal or a VAT certificate. For E.ON Next Business Energy, you can request a VAT declaration form by emailing them at
If your business has been paying the standard rate of 20% VAT while eligible for the reduced rate, you can claim a partial refund for any overpayments made during the last four years by submitting a VAT declaration form to your energy supplier.
If you are a registered charity, you will need to apply for the reduced rate by filling in a VAT declaration form, which you can obtain by getting in touch with your supplier. If you have different suppliers for gas and electricity, you'll need to fill out a form for each. This discount is not applied automatically, so your supplier will charge you 20% VAT on energy until you inform them that you are eligible for a reduction.
If you are a microbusiness or run your business from home, you will pay the discounted 5% VAT rate, provided you do not go over the 'de minimis' thresholds. To switch to a business energy deal when working from home, you need to prove that at least 50% of your household's energy usage is for business purposes.
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Frequently asked questions
Businesses that consume small amounts of electricity, defined as 33 kWh of electricity per day (1,000 kWh a month) or less, can apply for a reduced 5% VAT rate.
HM Revenue & Customs defines "small-scale" energy use as less than 4,397 kWh of gas/1,000 kWh of electricity per month (around 145 kWh of gas/33 kWh of electricity per day).
Charities and non-profit organisations qualify for 5% VAT on electricity if they meet certain conditions, such as having at least 60% of their energy use for non-business activities or residential accommodation.
If you are eligible for a reduced rate of VAT but are charged at the full rate, you can submit a VAT reduction application to your business electricity supplier. This may involve filling out a VAT declaration form or providing a valid HMRC certificate.
The standard VAT rate for businesses is typically 20%. Businesses with a taxable turnover of more than £90,000 per year must register for VAT, while those below this threshold can voluntarily register.
