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VAT for business gas and electricity

The article below explains what Value Added Tax (VAT) is, when it will be applied to businesses and how much it costs.

You’re legally required to pay VAT, but there are ways you can save money to cover this cost.

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What is VAT?

VAT is a consumption tax, levied by the government on services and goods. This tax is applied to goods that are bought or sold for consumption or use, including sport, utilities, transport and financial services.

What does VAT apply to?

For a full list of goods and services that VAT applies to, visit the government website.

If VAT-registered, you’ll typically include 20% VAT in the price of your goods and services. You’ll need to pay this VAT to HM Revenue and Customs (HMRC) every three months.

Any VAT you pay on goods and services can be claimed back from the HMRC, using your online VAT account.

Should my business be VAT registered?

By law, if your business’s taxable turnover is more than £82,000 per year, you must register for VAT. Businesses with an annual turnover of less than this can voluntarily register for VAT.

Visit the government website for helpful guides on when you should register for VAT.

Do I pay VAT on business energy?

Yes, business gas and electricity is subject to VAT and unfortunately can’t be claimed back, despite it being a business to business purchase. It’s important to stay on top of your contract renewals, to ensure you’re never paying more than you should. With our Do It For You service, we handle all of this for you, for good. Find out more.

You can find a full list of the charges on your business energy bill. For more information, see our business energy bill guide.

How much VAT do I pay on gas and electricity?

While most businesses will pay VAT at a rate of 20%, some are eligible for a discount. Your energy supplier will automatically add the VAT to your bill, so you’d need to apply for the discount separately.

All businesses will need to pay some level of VAT on their energy bills, but you could cover this cost by switching utilities.

What’s the eligibility criteria for a VAT discount?

You may be eligible to pay a reduced 5% rate of VAT on your energy bills, if you meet certain requirements:

  • At least 60% of your business’s energy is used for domestic purposes.
  • You are a charitable or non-profit organisation.

You’re regarded as having low energy usage if:

  • You use less than 33kWh of electricity per day, or 1,000kWh per month.
  • You use less than 145kWh of gas per day, or 4,397kWh per month.

If your usage is low enough, your supplier should automatically apply the VAT discount to your bill – but you’ll have to check with them to make sure.

Need to reduce your business’s energy consumption? Find out how with our business eco guide.

How do I apply for lower energy VAT rates?

You can register for a lower VAT rate using a VAT Declaration Form – you can get this from your energy supplier. This form can be used to claim a rebate for any overpayments over the past four years, either from your energy supplier or from HMRC.

If your organisation qualifies for VAT discount, you’ll automatically be exempt from paying certain government levies too.

If you think that you should be paying a lower amount of VAT we can help. Simply pick your supplier from the drop down menu, and enter your email address and we will send you a VAT declaration form and all the information that you will need.

What is the Climate Change Levy?

The Climate Change Levy (CCL) is a tax designed to encourage energy efficiency and reduced gas emissions for businesses. If you qualify for a reduced rate of VAT, you’ll probably qualify for exemption from the main rates of CCL.

If you don’t qualify for exemption from paying these rates, you could a sign a Climate Change Agreement (CCA) to get a discount on the tax. In a CCA, you will have to agree to make certain energy efficiency improvements to reduce your business’s consumption and emissions.

For information about other grants, or ways to reduce your energy usage, see our guide to business energy efficiency.

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