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 UK VAT rate 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?
For most businesses, the VAT rate on electricity and gas is 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, check out VAT rates on different goods and services at GOV.UK
Although you can't claim back any VAT that's paid on business energy, 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.
If your business is eligible for the reduced 5% VAT rate on gas and electricity, your supplier should automatically apply the discount to your bill, so long as you've given them a valid VAT certificate.
If your business has been paying the standard rate of 20% while it's been eligible for the reduced rate, a partial refund can be claimed on any over payments made during the last four years.
To make a claim, you need to get in touch with your supplier and fill out a declaration form. You will have to contact multiple suppliers and fill in a declaration form from each if any of the following apply to your business:
- You've switched energy suppliers during the last four years or the period you're claiming for
- You have more than one energy supplier (different suppliers for gas and electricity, for instance)
- Your business has multiple sites that are eligible for the discount
You can also get a declaration form from your supplier or from HMRC.
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 to make businesses more environmentally responsible. If you qualify for a reduced rate of VAT, you’ll probably qualify for exemption from the main rates of CCL.
The CCL is made up of two rates:
- The main levy rate - If your business pays the standard 20% rate of VAT then it will also be charged the CCL.
- Carbon Price Support rate - This is paid by owners of electricity generating stations and operators of combined heat and power (CHP) stations. If you generate your own energy and make money via the Feed-in Tariff, it’s unlikely you’ll pay this as you’ll be classed as a small generator.
What are the current Climate Change Levy rates?
The Climate Change Levy rates are adjusted each financial year. Here are the rates on each type of fuel (referred to as a ‘taxable commodity’) for this year and next year.
|Taxable commodity||Rate from 1 April 2020||Rate from 1 April 2021|
|Electricity (£ per kilowatt hour KWh)||0.00811||0.00775|
|Gas (£ per KWh)||0.00406||0.00465|
|LPG (£ per kilogram kg)||0.02175||0.02175|
|Any other taxable commodity (£ per kg)||0.03174||0.03640|
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.
What is the percentage discount for holders of a CCA?
|Taxable commodity||Rate from 1 April 2020||Rate from 1 April 2021|
|Any other taxable commodity||81%||83%|
What are the current Carbon Price Support rates
Although it’s unlikely your business will have to pay this portion of the CCL - unless you own an electricity generating station or operate a combined heat and power (CHP) station - here are the current Carbon Price Support rates:
|Carbon Price Support rate commodity||Gas||Petroleum gas or other gaseous hydrocarbon in a liquid state||Coal and other solid fossil fuels|
|Unit||£ per kilowatt hour (kWh)||£ per kilogram (kg)||£ per gigajoule (GJ) on gross calorific value (GCV)|
|April 1, 2016 to March 31, 2021||0.00331||0.05280||1.54790|
How to cut the cost of your business energy bills
Switching business energy with Bionic is a quick and simple way to cut the cost of your business energy bills. Our tech-enabled experts can compare rates in minutes, and we have access to exclusive deals from some of the UK’s top suppliers.
Running a quick business energy comparison with the help of our tech-enabled experts means your business energy can be sorted in three simple steps:
- Enter your postcode - Give us your business postcode and our tech-enabled energy team will use smart data to get the info we need to run a business energy comparison.
- Get your quotes - Our business energy experts compare business energy suppliers to get your quotes and help you choose the best energy tariff for your business.
- Switch business energy - We contact the suppliers and handle the business energy switch for you. We’ll even take care of renewals to get you the best energy deals every year.
Switching business energy with Bionic could save your business hundreds of pounds each year, but there’s more to it than just saving money - we only work with trusted suppliers who can offer a quality service alongside great rates.
To find out more and to see how much you could save on your business essentials, enter your postcode and business name at Bionic.co.uk.