VAT on gas and electric bills

How much is VAT on electricity for business?

The VAT rate on business electricity bills is 20%, but to promote energy efficiency and help hit national targets, the government offers a discounted rate of 5% for businesses that use a limited amount of electricity.

This is called the ‘de minimis’ level, and if you use less than 33 kWh of gas per day, 1,000 kWh per month or 12,000 kWh a year, your supplier should automatically put you on this discounted rate of VAT on business electricity bills.

This lower VAT rate should be applied automatically, but it’s always worth checking your bill and making sure. If you qualify for the discounted rate of VAT on electricity bills for business but you’re still being charged the higher rate, get in touch with your supplier.

How much is VAT on gas for business?

VAT on business gas is also charged at 20%, but there is an opportunity to pay the discounted rate of 5%. To be eligible for the lower rate of VAT on gas for business, you’ll need to use less than 145 kWh of gas per day. Over one month, this equates to 4,397 kWh of gas, while over a year it equals 52,764 kWh.

To work out whether or not you can access the lower rate for VAT on gas, check your recent business gas bill and compare your consumption rates with those mentioned. As with VAT on electricity for business, be sure to check your bill and make sure you aren’t being charged the full rate. If you are, get in touch with your supplier.

Can your business claim back the VAT on business energy?

If your business is VAT registered, you should be able to claim back the VAT as input tax on your business expenses, subject to the normal rules on VAT deduction. This applies whether you're paying the 20% rate or the 5% rate.

To find out how much tax your business can claim back, go to the HMRC website.

It’s also worth knowing that you don’t pay VAT on business rates, council tax, wages and a host of other expenses that are outside the scope of VAT.

What is the VAT rate on energy for microbusinesses?

The rate of VAT you pay on energy is determined by the amount of gas and electricity you use, and not the size of your business. If you run a microbusiness, then you’ll pay the discounted VAT rate on electricity and gas, so long as you use no more than the ‘de minimis’ levels.

Similarly, if you run your business from home, then you’ll pay the discounted 5% rate - which is the same rate of VAT on energy bills UK households pay - so long as you don’t go over the ‘de minimis’ thresholds.

Could your business pay reduced VAT on energy bills?

In addition to the de minimis level of energy consumption, there are other situations where you may pay reduced VAT on gas and electric bills. These include:

• At least 60% of your business’s energy is used as household energy
• Your business is a charity or not-for-profit organisation
• Business premises that are also the place of residence for 90% of the people inside, such as student accommodation, places of rehabilitation and care homes
• Places of business that are also your home
• Self-catering holiday accommodation
• Free schools and educational academies
• Places of worship, such as nunneries and monasteries.

Your businesses may only partly qualify for the reduced rate. If this is the case, your business may be better best suited to a ‘mixed use’ deal. This allows your business to pay a lower rate on the parts of your business which qualify, while the rest pays the standard 20% charge. To qualify, you’ll need to discuss this with your provider or the energy expert in charge of your price comparison.

Can claims for VAT be backdated?

If you think you’ve been paying more VAT on business gas and electricity than you should have been, then you can make a backdated claim for up to four years’ payments. If you do get a refund, this will be for the difference between the discounted and standard rates of VAT for the period you’re claiming for.

Does the Climate Change Levy (CCL) affect VAT on energy bills?

In 2001 the government introduced the Climate Change Programme, designed to lower emissions nationwide. A big part of this is the Climate Change Levy (CCL) which offers businesses another chance to lower their energy spend.

Put simply, if your usage is under the de minimis level for VAT on gas and electricity, or your business premises are eligible for a VAT discount, you will most likely be exempt from paying the main rates of CCL. If not, you can sign a Climate Change Agreement (CCA) which will give you the chance for discounts of up to 90%. By signing a CCA, you agree to make improvements to your energy efficiency, thereby reducing your average consumption.