Umair Gaines
Many businesses in the UK are charged VAT at 20% on their energy bills. However, some businesses may qualify for a reduced rate of 5%. This includes charities, non-profit organisations, and businesses that use small amounts of energy. To qualify for the reduced VAT rate, businesses must meet certain criteria, such as having a taxable turnover of less than £90,000 per year or using less than 1,000 kWh of electricity per month. Businesses that believe they qualify for a reduced VAT rate can submit an application to their energy supplier, and the process may involve filling out a VAT declaration form.
| Characteristics | Values |
|---|---|
| Business electricity standing charges | Agreed in your tariff |
| Business electricity prices per kWh | Determined by your tariff and recent meter readings |
| Standard VAT rate | 20% |
| Reduced VAT rate | 5% |
| Who qualifies for the reduced VAT rate? | Charities (registered or unregistered), non-profit organisations, village halls, sports clubs, community centres, etc. |
| Qualifying use | Use by a charity for non-business activities, use in a "relevant residential building" (e.g. a care home, hospice or student accommodation) |
| Small quantities of electricity | Less than 1,000 kWh/month |
| Small quantities of gas | Less than 4,397 kWh/month |
| To apply for a reduced rate of VAT | Submit a VAT reduction application to your business electricity or commercial gas supplier |
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What You'll Learn
Charities and non-profits
To qualify for the reduced VAT rate, the charity's activities must be “non-business". This means that the charity's energy use is classed as 'small-scale', defined as 33kWh of electricity per day (1,000 kWh a month) and 145kWh of gas per day (4,397 kWh a month). If a charity uses less than 60% of its energy for non-business activities, it will pay the reduced rate of 5% VAT on the qualifying usage and the standard 20% rate on the rest.
To apply for a reduced VAT rate, charities and non-profits will need to submit a VAT reduction application to their energy supplier. This can often be done through an online portal or by emailing the supplier. The supplier will then supply the correct forms, and the review process can take up to 14 days. It is important to note that the reduced rate VAT won't be applied automatically to bills, so charities must be proactive in seeking out these discounts.
Additionally, charities and non-profits may also be exempt from the Climate Change Levy (CCL), which is a separate tax charged on non-domestic energy bills. CCL is applied to businesses and organisations in the industrial, public services, commercial, and agricultural sectors to encourage more environmentally friendly practices. Charities and non-profits are likely to be exempt from CCL, but this will depend on their VAT status.
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Small businesses
If your business has a taxable turnover of more than £90,000 per year, you must register for VAT by law. However, if your turnover is less than this, you can voluntarily register for VAT. Being VAT-registered allows businesses to add VAT to invoices and claim back VAT on certain items and services, including business electricity.
To apply for a reduced VAT rate, you will need to submit an application to your business electricity supplier. The process varies by supplier, but you will usually need to provide a VAT Declaration Form or a VAT reduction certificate. Your supplier will then review your application and, if successful, apply the reduced rate to your next invoice.
It is important to note that the reduced VAT rate will not be applied automatically to your bills. You will need to notify your supplier and provide them with the correct forms. Even after notifying the supplier, exemptions can be ignored, so it is important to carefully review your invoices to ensure you are being charged the correct rate. If you have been misbilled, you can claim back up to four years of overpayments.
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Low electricity usage
The standard UK VAT rate is currently 20%, but businesses that consume less energy can apply for a reduced rate of 5%. This includes businesses that use less than 1,000 kWh of electricity per month.
If you are eligible for a reduced rate of VAT but are being charged at the full rate, you can submit a VAT reduction application to your business electricity supplier. The application process varies slightly by supplier. For example, for British Gas Business Energy, you can apply through their online portal or using a VAT certificate. For E.ON Next Business Energy, you can request a VAT declaration form by emailing them.
To reduce your electricity usage, you can:
- Purchase energy-efficient appliances and electronics.
- Switch off lights and unplug electronics when they are not in use.
- Reduce how often you heat and cool your home.
- Adjust your thermostat setting.
- Switch to smart technology.
- Lower your water heater temperature.
- Purchase an electric system for space heating and cooling and operate it efficiently.
- Reduce your “always-on” appliances.
- Take advantage of off-peak rates.
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VAT declaration form
Charities and not-for-profit organisations in the UK often pay too much for their energy bills due to being charged VAT at the standard rate of 20%. However, they may be eligible for a reduced VAT rate of 5% on business gas and electricity. To qualify for this reduced rate, the charity's activities must be "non-business" and the organisation must meet certain conditions. For example, the energy use must be classed as "small-scale", defined as less than 1,000 kWh of electricity and 4,397 kWh of gas per month.
If your organisation qualifies for a reduced VAT rate, you will need to submit a VAT reduction application to your energy supplier. This can be done by filling out a VAT declaration form, which can be obtained from your supplier or from HMRC. The form can also be used to claim a rebate for any overpayments made in the past four years. The process for applying may vary slightly depending on the energy supplier. For example, for E.ON Next Business Energy, you can request a VAT declaration form by sending an email, while for British Gas Business Energy, you can apply through their online portal or using a VAT certificate.
The Climate Change Levy (CCL) is an additional tax applied to energy bills, charged at 0.775 p/kWh for electricity and gas. Charities and not-for-profits are likely to be exempt from CCL, but this depends on their VAT status. If eligible for a reduced VAT rate, organisations will probably also qualify for exemption from CCL. It is important to note that the reduced VAT rate won't be applied automatically, so suppliers must be notified, and the correct forms must be filled out.
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VAT relief and rebates
The standard UK VAT rate is currently 20%, but businesses that consume small amounts of electricity can apply for a reduced 5% VAT rate. This applies to businesses that use less than 1,000 kWh of electricity per month.
Charities and not-for-profit organisations are also eligible for reduced VAT rates and CCL exemption. This includes registered and unregistered charities, non-profit organisations, village halls, sports clubs, and community centres. Charities must carry out non-business activities to qualify for the reduced VAT rate. If a charity uses less than 60% of its energy for non-business activities, it will pay the reduced rate of 5% VAT on the qualifying usage and the standard 20% rate on the rest.
To apply for a reduced VAT rate, you can submit a VAT reduction application to your business electricity supplier. The application process varies slightly by supplier. For example, British Gas Business Energy customers can apply through their online portal, while E.ON Next Business Energy customers can request a VAT declaration form by email. If you are eligible for a reduced rate of VAT but are being charged at the full rate, you can claim back up to four years of overpayments.
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Frequently asked questions
Charities, non-profit organisations, and businesses using small amounts of electricity may qualify for reduced VAT on electricity.
The reduced VAT rate is 5%.
Less than 1,000 kWh of electricity per month or 33 kWh of electricity per day.
You will need to submit a VAT reduction application to your electricity supplier. You may need to provide a certificate to support your application.
You can contact the supplier to find out why your application was rejected. If you have charitable status, your application may have been rejected because your site is being used for charitable business activities, rather than charitable non-business activities.
