VAT for charities

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The good news and the bad news

Definition of business/charity energy use

How to claim

How to get cheaper gas and electricity prices

The bad news for charities…

Utility companies tend to view charities in the same way they do small businesses because of the amount of gas & electricity they consume and hence the type of meter profile applied to their premises. This is not necessarily a good thing... In the words of the UK's consumer champion, Consumer Focus: "Small businesses have been caught in the unfortunate pincer movement of not only rising gas and electricity prices but also deteriorating terms and conditions of supply." This means that charities, like businesses, must not only shop around and switch if they want to get on competitive rates but then need to serve notice to their supplier well ahead of the contract end date (90 days in some cases) in order to avoid being automatically 'rolled' onto higher rates for the following year.

Good news - reduced VAT for charities…

However it is not all bad news for charities because, under the Finance Acts 1993 & 1997, Charities (registered and unregistered) whose energy is used "otherwise than in the course or furtherance of a business" for at least 60% of its actual use, can receive all their power supplies at the reduced rate of 5% VAT. With the standard rate of VAT now at 20%, this is a significant saving for any organisation, let alone a charity, SO DIG OUT A BILL AND CHECK YOUR VAT RATE NOW! If your 'non-business' use is below 60% of total usage, that proportion of the supply can still be applied to the reduced rate. Eg If 35% of energy use is non-business, then 35% can be taxed at 5% and 65% at the standard VAT rate.

What's the difference between business and non-business use?

Non-business use is where no charge is made for products or services offered by the charity or where the only income is a non-business grant (e.g. a day centre for the elderly funded by Social Services) or voluntary donations. It also includes the provision of welfare services to all distressed people for the relief of their distress, and if provided consistently below cost, i.e. at least 15% (this includes services for the elderly, infirm, handicapped people, the chronically sick and the poor).

'Business' activities on the other hand include fund-raising activities where goods or services are given in return for payment - such as rent, admission fees, catering or a jumble sale.

Any other organisations apart from charities that qualify?

Many small businesses will meet the 'De Minimis' requirements which also qualify the organisation to be billed at 5% VAT. The requirements are that they use less than an average of 33 kWh per day (1,000 kWh per month) of electricity or 5 therms / 145 kWh per day (150 therms or 4,397 kWh per month) of gas.

Other types of energy use (at least 60% of the overall use) that qualify the organisation for the VAT reduction are:

For domestic use.
A building, or part of a building, which consists of a dwelling or number of dwellings.
A building, or part of a building, used for a residential purpose.
A home or other institution providing residential accommodation for children.
A home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present medical disorder.
A hospice.
A residential accommodation for students or school pupils.
Residential accommodation for members of any of the armed forces.
A monastery, nunnery or similar establishment.
An institution which is the sole or main residence of at least 90% of its residents (except use as a hospital, a prison or similar institution, a hotel, inn or similar establishment).
Self catering holiday accommodation.
A caravan or a houseboat!

Is there a standard charity VAT form?

Charities that are currently paying the standard rate simply have to fill out a VAT Declaration form which can be downloaded here and send to their supplier. Whilst this charity VAT form is totally compliant, charities may wish to request the form provided by their own supplier. Below are the phone numbers and addresses for the relevant customer service departments of all the major business energy suppliers:

Scottish Power - 0845 2727000

Multiple addresses: 'Refer to address provided on bill'

Shell - 0800 0568101

Shell, Shell Gas Direct, 1-3 Strand, London WC2N 5EJ

E-on - 0800 0686520

Eon, PO Box 9042, Sherwood Park, Annesley, Nottingham, NG15 5AZ

EDF - 0800 0962255

EDF Energy plc, Registration Department, Southdownview Road, Worthing, BN14 8NL

British Gas Business - 0845 6000604

British Gas Business, Spinneyside, Penman Way, Grove Park Leicester, LE19 1SZ

N Power - 0845 1663360

Npower Direct Limited, 2 Princes Way, Solihull West Midlands, B91 3ES

Opus - 0843 2272366

Opus Customer Services, Royal Pavillion, 2 Summerhouse Rd, Northampton NN3 6BJ

SSE - 0800 3894466

Scottish & Southern Energy, Grampian House, 200 Dunkeld Rd, Perth, PH1 3GH

CNG - 01423 502554

CNG, CNG House, 5 Victoria Avenue, Harrogate, HG1 1EQ

Corona - 08442 64 64 64

Corona Corona Energy Ltd, Edward Hyde Building, 38 Clarendon Road Watford, WD17 1JW

Haven - 01473 725943

Haven, The Havens, Ransomes Europark, Ipswich, IP3 9SJ

If a charity qualifies for the reduction, can it make a backdated claim?

Yes! You can claim up to three years prior and should expect a rebate from your supplier for the difference between 5% and the standard rate of VAT charged at the time of the bills (bearing in mind the number of times it has changed in recent years). For example one charitable organisation - the Regal Theatre in Bathgate near Edinburgh - recently received over £11,000 after writing to its supplier to point out it had been paying the incorrect VAT rate for gas and electricity: Regal Theatre case study.

Is there anything else charities can avoid paying?

Yes! Charities are also exempt from the Climate Change Levy (CCL) which is automatically added to non-domestic energy bills. The CCL is a Government tax, introduced in 2001, on the use of energy by businesses, agriculture and the public sector which applies to both gas and electricity prices. The aim of the levy is to encourage industry, commerce and the public sector to improve energy efficiency and reduce greenhouse emissions. Current Electricity CCL is 0.485p per Kilowatthour (kWh) and Gas CCL 0.169p per kWh. By successfully applying for the VAT reduction, charities should automatically be made exempt from CCL by their supplier.

What else should treasurers/financial controllers be doing?

Keep an eye on bills to make sure your supplier doesn't revert you back to the standard VAT rate by mistake. Also look out for your contract renewal letter which will contain the rates it proposes to charge going forward into a new contract period. (NB this acts as your one-and-only reminder to shop around and compare other prices before being automatically locked-in to their new tariffs).

What pence per unit of electricity or gas should a charity be paying?

The lowest price for 'business' electricity - available to those organisations that shop around - is just under ten pence per unit, whilst staying with the same supplier year upon year usually means paying considerably more. Worse still are the prices reserved for passive organisations that have avoided ever entering any form of contract with their supplier and simply pay the bills month in, month out.

Energy type	New Customers	Typical Renewals	Out-of-Contract
Business Electric	9.5p/kWh	15p/kWh	Up to 30p/kWh
Business Gas	3.8p/kWh	5.2p/kWh	Up to 7.5p/kWh