What is VAT?

Vat is a consumption tax levied by the government on services and goods bought or sold for consumption or use, such as your utilities.

VAT on utilities in numbers:

  • 100% of businesses will need to pay some level of VAT on their energy bills.
  • £82,000: If your business’ annual taxable turnover is more than this, you must register for VAT.
  • 20%: The rate of VAT paid by most businesses
  • 0%: The amount of business utilities VAT that can be claimed back, even though it ’s a business to business purchase.

VAT for business electricity: The facts

  • All business energy is subject to VAT
  • VAT on business energy accounts is normally in the region of 20%
  • Unfortunately, this VAT can’t be claimed back
  • However, your business may be eligible for a VAT discount on your business energy

Do you qualify to save VAT for business electricity?

Your business could be eligible for a reduced VAT rate of 5% on your energy bills if you meet one or more of the following criteria:

  • A minimum of 60% of your energy consumption is used for non-commercial purposes.
  • You are a non-profit or charitable organisation.
  • Supplies of certain small quantities of fuel and power, known as de minimis, are always treated as being made for domestic use, even when the supply is to a business customer:
    • You use less than 1,000kWh of electricity per month, or 33kWh per day
    • You use less than 4,397kWh of gas per month, or 145kWh per day
  • Your business may also qualify for a reduction of VAT on business electricity through the Climate Change Levy (CCL), a policy that encourages businesses to use energy efficiently and reduce carbon footprints.
  • Sign a Climate Change Agreement (CCA) to get a discount on the CCL tax. This is essentially a signed commitment to reducing your business’s emissions and energy consumption.

Even if your business qualifies for a business energy VAT reduction, your supplier may not be applying it correctly – or at all! Reduced VAT should be incorporated into your energy bill by default, but energy suppliers often neglect to do this.

How to ensure you are getting the correct VAT for business electricity

  • Check your energy bill regularly to ensure you are paying the correct rate.
  • Use the services of an energy consultant to ensure the accuracy of the tax associated with your bills.

Is your business eligible for a VAT discount?

If your organisation meets certain requirements, you may be eligible to pay a reduced 5% rate of VAT on your business utilities bills:

  • 60% or more of your business’ energy is used for non-commercial purposes.
  • You are a charitable or non-profit organisation.
  • Your business uses less than 33 kWh of electricity per day, or 1,000kWh per month.
  • Your business uses less than 145 kWh of gas per day, or 4,397kWh per month.

How does the Climate Change Levy (CCL) work?

What it is: A business tax to encourage energy efficiency and reduced gas emissions.
Qualify for a reduced rate of VAT? You may qualify for exemption from the main CCL rates.
You can also elect to sign a Climate Change Agreement. By making a commitment to energy-efficient improvements and reducing your business emissions and consumption, you could qualify for a CCL discount.

How to ensure you’re never paying more than you should on your business utilities VAT

  • Stay on top of your contract renewals
  • Check that your supplier is automatically applying the relevant VAT discount to your bill
  • Use a specialist energy consultant to ensure the accuracy of the tax associated with your bills

Don’t qualify for any VAT discounts?

Smarter Business has the expertise to advise your business on its VAT, tax, and levy standing. We are here to help you find out about your eligibility for reductions and exemptions, assist with applications, and claim back in the event of overcharging.

Even if your business doesn’t qualify for reduced VAT for business electricity, there are other ways to reduce your business energy bill.

Read our Business Energy Saving Guide for simple solutions to help your business save money and use energy more efficiently.

INFOGRAPHIC: How to save on VAT on your business utilities bill

VAT is naturally applicable to your business utilities bill, together with other levies and taxes.  However, some organisations qualify for discounts and a reduced VAT on utilities amount.
Reduced VAT should be incorporated into your energy bill automatically, but this is something that should be checked regularly to ensure that the correct discounts are being applied. This is often where an external consultant can come in handy to help.

“Nothing is certain in life but death and taxes.” – Benjamin Franklin

But how much VAT should your business be paying on your utilities?

Business Utilities - VAT Infographic - Smarter Business