Charities overcharged VAT on energy bills

Charities are paying too much for their energy bills because of incorrect VAT rates. Make It Cheaper reveals the extent of the overpayment.

Charities will have paid up to £78 million in unnecessary tax this year because almost half of them are unaware that energy used for 'non-business' purposes is subject to a reduced 5% VAT rate and exempt from the Climate Change Levy.1

Charities, which are billed in much the same way as businesses for gas and electricity, simply have to sign a declaration form and send it to their supplier to qualify for the exemptions. However, according to research from Make It Cheaper, 46% of charities do not know about the VAT/CCL discount and over two-thirds (69%) are unaware that they can also claim a rebate for incorrect payments made over the past three years.

Figures from Make It Cheaper, which helps over 5,000 charities buy their energy each year, suggest that the total reclaimable amount could currently be as high as £145 million.2

The Bosco Society in Bootle, for example, has managed to arrange a rebate of £2,000 - which has helped towards the cost of providing accommodation for homeless people with a history of drug abuse. The Society for Abandoned Animals in Manchester has managed to save £1,200 a year by successfully claiming the discount which has gone towards veterinary bills, vaccines and microchips. Another charity - The Regal Community Theatre in Bathgate near Edinburgh - received a five figure sum after Make It Cheaper advised it to write to its supplier for a rebate, pointing out that it had long been paying the incorrect rates for its gas and electricity. (See notes to editor for case studies.)

Jonathan Elliott, managing director of Make It Cheaper, commented: "There's an awful lot of money being prevented from going to good causes quite unnecessarily. The rising cost of energy already takes a big bite out of budgets at a time when many charities are dreaming of a windfall. Worst hit are the smaller ones, often run by volunteer treasurers with little accounting experience. Whilst it's HMRC that benefits from overpayments, the energy companies are not exactly absolved from blame and could be doing more to help their charity customers. We've seen cases of organisations successfully applying for the rebate, only for their energy company to subsequently start billing the full VAT amount again because of an administrative error. Given our close relationship with all the energy suppliers, we are now working with them to be more alert to the situation."

Make It Cheaper has published an Energy Guide for Charities which includes details of qualifying organisations, a standard 5% VAT Declaration form and contact details for all the major energy suppliers.

- ENDS -

About Make It Cheaper: Established in 2007, Make It Cheaper is the number one destination for businesses to get a better deal on their utilities and business services. Based in Central London, Make It Cheaper receives more enquiries and arranges more new contracts than any other third party introducer. This includes contracts for the business customers of major domestic price comparison services with whom Make It Cheaper has partnerships, as well as business membership organisations, charities and trade associations. Acting on behalf of all these customers with total impartiality and free of charge, Make It Cheaper offers year-on-year savings across a range of products including business energy, telecoms and financial services. Using its expertise and scale in the SME market, Make It Cheaper will typically save its customers over 30% of costs as well as a considerable amount of time that they can then spend on running their businesses.

Further information: Nick Heath 020 7654 0730 / 07720 297972 / nick.heath@makeitcheaper.com

Case Studies:

LocationOrganisationSavingContact
Manchester Society for Abandoned Animals £1.2k Bob Gregson
0161 973 5318
Liverpool The Bosco Society £2k Pat Boylan
07950 138230
Warrington Cinnamon Brow Community Centre £3k James Kivell
01925 819700
Oldham Coppice Neighbourhood Group £1.2k Robina Kauser
0161 626 4586
Nottinghamshire Newark Womens Aid £830 Marlene Ferris
01636 679687
Scotland Bathgate's Regal Theatre £5figs Gillian Robertson
01506 632669
Kent Action with Communities in Rural Kent N/A Nigel Whitburn
01303 813790
Sussex Garden Africa £1k Georgina McAllister
01435 882475
Dr Robert Close
01308 458059

1. Definition of 'Non-Business'

Under the Finance Acts 1993 & 1997, charities 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. This means 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. More info at www.hmrc.gov.uk/charities/vat/fuel-power.htm

2. Make It Cheaper's methodology

  • There are 161,500 charities in the UK according to the Charity Commission
  • The average annual electricity consumption of charities is 35,361 kWh
  • The average price for energy currently being paid by charities is 12p/kWh
  • The percentage of (472) charities surveyed are unaware of the discount is 46%
  • The difference in VAT between the standard (20%) and the discounted (5%) rate is 15%

So the formula for the potential 2011 VAT overpayment on electricity is: total number of charities x annual average consumption (gives you total consumption) x average p/kWh (gives you total spend) x percentage of those unaware x the difference in VAT (161,500 x 35,361 x 0.12 x 0.46 x 0.15) = £47,285,436

Meanwhile, the Climate Change Levy (CCL) on electricity is 0.485p/kWh. And so the formula for the potential 2011 CCL overpayment on electricity is: total number of charities x annual consumption (gives you total consumption) x average p/kWh (gives you total spend) x unaware x CCL (161,500 x 35,361 x 0.46 x 0.00485) = £12,740,797

Total potential charity overpayment on electricity in 2011 = £60,026,233

Then, if gas is included:

  • 39% of charities have gas as well as electricity
  • The average annual gas consumption among charities is 83,261 kWh
  • This costs them an average of 4p/kWh
  • CCL on gas is currently 0.169p/kWh
  • So, the VAT overpayment (161,500 x 0.39 x 83,261 x 0.04 x 0.46 x 0.15) = £14,473,975
  • And the CCL overpayment (161,500 x 0.39 x 83,261 x 0.46 x 0.00169) = £4,076,836

Total 2011 gas + electricity = £78,577,044

At the end of 2010, Make It Cheaper estimated the potential electricity overpayment for that year was £31,123,000 (the VAT rate, number of charities and the CCL were all different then). It did not calculate gas (but, as above, one can estimate it would have been about 30% of the electricity figure - ie about £10m). Neither did it calculate the figures for 2009 but energy prices, CCL and the VAT rate were all lower at that time so one can assume it was more like £20m for electricity and, therefore, £6m for gas.

Total 2009/2010: 31,123,000 + 10,000,000 + 20,000,000 + 6,000,000 = £67,123,000.

Therefore, the combined 3-year Rebate Total = £145,700,004

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