How much is VAT on energy?

The majority of businesses will be paying VAT at a rate of 20% on their electricity and gas bills.

VAT on Electricity for Small Businesses

Some organisations qualify for discounts and a reduced VAT on electricity for small businesses…

VAT on electricity for small businesses

Levied by the government for a range of goods and services, business VAT on utilities is naturally applied together with other levies and taxes. Not only does this underscore the importance of finding the best contract tariffs for your business, but it highlights the benefit of having an energy consultant to ensure the accuracy of the tax associated with your bills.

How much is VAT on electricity for small businesses?

The VAT rate on utilities for SMEs is normally 20%. However, your small business may be eligible for reductions on your utilities VAT.

Find out if your organisation qualifies for VAT on electricity exemptions/discounts

All businesses pay VAT on their energy accounts – normally in the region of 20% – but some organisations qualify for discounts and a reduced VAT amount. If your business falls into one of the following categories, it may qualify for discounts and reduced VAT on utilities:

  • If you meet the de minimis requirements for low consumption;
  • If your premises are commercial and non-commercial and the majority of your usage is non-commercial;
  • You are a charity or not-for-profit organisation.

Reduced VAT should be incorporated into your energy bill, but this is something that should be regularly checked to ensure you are paying the correct rate. If you qualify for a VAT reduction, it is likely your business also stands to be exempt from the main Climate Change Levy (CCL) rate. This encourages energy efficiency and urges reduced gas emissions for businesses.

How Smarter Business can help

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. Contact Smarter Business today – your single source of utilities solutions.

VAT is levied on most services and goods provided by registered UK businesses. The standard VAT rate on goods and services in the UK is 20%. The VAT rate of 20% was set in 2011. This rate applies to VAT on gas and electricity, although some customers do qualify for VAT reductions.

What if I my business is VAT-registered?

Even if your business is registered for VAT, you will still need to pay VAT on energy and most goods and services. However, if your business is VAT-registered and you end up paying more VAT than what you have charged your customers, you can apply to HMRC to reclaim the difference.

Reductions on VAT on electricity for small businesses

Remember – business customers using less than 1,000 kWh of electricity per month, OR less than 4,397 kWh gas per month will automatically qualify for a reduction in VAT on energy, paying 5% instead of the standard 20%. Charities, non-commercial users and not-for-profits are also eligible to pay less VAT on energy.

Reduced VAT on energy-saving materials

In a bid to incentivise households to use energy more efficiently, a reduced rate of VAT is applicable on energy-saving materials. The following items are subject to a reduced rate of VAT (5%):

  • Air source heat pumps
  • Wood-fuelled boilers
  • Central heating and hot water controls
  • Draught stripping
  • Ground source heat pumps
  • Insulation
  • Micro combined heat and power units
  • Solar panels
  • Water and wind turbines

VAT on renewable energy for small businesses

As energy prices and environmental consciousness increase, more and more businesses are looking to renewable energy sources. However, you shouldn’t overlook that there are applicable VAT implications for renewable energy sources. Income from the sale of renewable energy has different VAT treatments. The sale of renewable energy is subject to Feed in Tariffs (“FIT”). The nature of the FIT carries different VAT implications, so it’s important for businesses to abide with the relevant VAT rate. A benefit of energy from renewable sources is that, unlike conventional energy, it is not liable to the Climate Change Levy.

Let Smarter Business take care of your

VAT on electricity VAT on electricity can seem like just another headache for small businesses, which is why Smarter Business is here to help. With their experience in VAT on electricity, our team will be able to assist you in applying for relevant VAT on energy reductions. We can even help you claim VAT back if you have overpaid in the past. Simply fill in the form on this page and one of our consultants will be in touch.

Where to get more information about VAT on utilities for small businesses

For more information about vat on utilities, visit the HM Revenue and Customs website.