A guide to VAT for business gas and electricity
VAT is a government tax on services and goods. It is applied to goods that are bought or sold for consumption or use, including sport, utilities, transport and financial services.
The standard rate of VAT in the UK is currently 20%, but there are other VAT rates which you need to be aware of as a business, including reduced rates charged at 5%.
Should my business be VAT registered?
If your business’s taxable turnover is more than £85,000 per year you must, by law, register for VAT. Businesses with an annual turnover of less than this can voluntarily register for VAT.
When you register, HMRC will send you a VAT registration certificate. This confirms:
- your VAT number
- when to submit your first VAT Return and payment
- your ‘effective date of registration’ (the date you went over the threshold, or the date you asked to register)
What does VAT apply to?
If VAT-registered, you’ll typically include 20% VAT in the price of your goods and services. This VAT will need to be paid to HM Revenue and Customs (HMRC) every three months.
VAT isn’t charged on goods or services that are:
- exempt from VAT
- outside the scope of the UK VAT system
Yes, business gas and electricity is subject to VAT and unfortunately can’t be claimed back, despite it being a business to business purchase. It’s important to stay on top of your contract renewals, to ensure you’re never paying more than you should. With our Do It For You service, we handle all of this for you, for good.
How much VAT do I pay on gas and electricity?
While most businesses will pay VAT at a rate of 20%, some are eligible for a discount. Your business energy supplier will automatically add the VAT to your bill, so you’d need to apply for the discount separately.
All businesses will need to pay some level of VAT on their energy bills, but you could cover this cost by switching utilities.
What is the business energy VAT threshold?
You should be eligible for a reduced rate of 5% VAT on your gas and electricity bills if your average daily usage is no more than 145kWh of gas per day (4,397kWh per month) and 33kWh (1000 kWh per month) of business electricity.
Can my business claim VAT back?
If your business pays VAT, you claim back any VAT paid on goods and services, using your online VAT account.
For a full list of goods and services that VAT applies to, visit GOV.UK
You may be eligible to pay a reduced 5% rate of VAT on your energy bills, if you meet certain requirements:
- At least 60% of your business’s energy is used for domestic purposes.
- You are a charitable or non-profit organisation.
You’re regarded as having low energy usage if:
- You use less than 33kWh of electricity per day, or 1,000kWh per month.
- You use less than 145kWh of gas per day, or 4,397kWh per month. If your usage is low enough, your supplier should automatically apply the VAT discount to your bill – but you’ll have to check with them to make sure.
How do I apply for lower energy VAT rates?
You can register for a lower VAT rate using a VAT Declaration Form – you can get this from your energy supplier. This form can be used to claim a rebate for any overpayments over the past four years, either from your energy supplier or from HMRC.
If your organisation qualifies for VAT discount, you’ll automatically be exempt from paying certain government levies too.
What is the Climate Change Levy?
The Climate Change Levy (CCL) is a tax designed to encourage energy efficiency and reduced gas emissions for businesses. If you qualify for a reduced rate of VAT, you’ll probably qualify for exemption from the main rates of CCL.
If you don’t qualify for exemption from paying these rates, you could sign a Climate Change Agreement (CCA) to get a discount on the tax. In a CCA, you will have to agree to make certain energy efficiency improvements to reduce your business’s consumption and emissions.
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