Is There VAT on Water Rates for Businesses?

Almost all homes and businesses use water and receive regular water bills. Have you ever considered how much VAT you are paying on your water bills? Is there VAT on water rates at all?

What is VAT?

VAT is “value added tax”, a tax levied on most goods and services provided by registered businesses in the UK. VAT is the third-largest source of government revenue. The default VAT rate is 20%, although some good and services are subject to a reduced VAT rate, and others are exempt from VAT altogether.

Do households pay VAT on water rates?

Supplies of water and ice (except heated water, distilled water, or mineral waters etc.) are VAT-exempt for domestic customers. Households don’t pay any VAT on water bills.

Domestic customers also don’t pay VAT on disconnection and reconnection charges arising as a result of the non-payment of the bill; or on opening and closing of stopcocks at the request of the water supplier.

Is there VAT on business water bills?

Value added tax (VAT) is payable by some non-household customers. VAT on water bills is usually applied to businesses involved in engineering, manufacturing, and construction.

VAT on water rates is applicable to businesses that fall into divisions 1-5 of the 1980 edition of the Standard Industry Classifications (SIC). The types of businesses that pay VAT on water rates include:

Chemicals
Construction
Engineering
Manufacturing
Mining
Textiles
Utilities

Which SIC code applies to my business?

You can review the full list of SIC codes here.

Does my business pay VAT on water bills?

Non-industrial businesses are exempt from paying VAT on their water supply.

How much is VAT on water rates for businesses?

VAT on water for industrial customers is charged at the standard rate of 20%.

How to ensure you are paying the correct VAT on your water rates

It’s important to inform your water supplier of your correct SIC code so that they can ensure that you are paying the correct VAT on your water bills.

Still not sure about VAT on your business water rates bills?

Give the water team at Smarter Business a call. They’ll be able to advise about the VAT rate applicable to your business, AND they may be able to find you a cheaper water rate to save your business money.