Guide to Energy VAT for Businesses

A man with a calculator inputting data into a spreadsheet on a computer

What is Value Added Tax (VAT)?

VAT is a tax levied by the government on goods and services payable to HMRC. There are different rates of VAT that can be charged, 20% VAT is currently the standard rate most businesses pay however there is a reduced rate of 5% for certain businesses.

How does VAT work?

If you are a VAT registered business, you will include 20% VAT on your products or services. This is then payable to HMRC in your next VAT return. You would usually get any VAT paid on products or services back from HMRC in your VAT return, however VAT paid on your energy bills cannot be claimed back unless you are on a reduced rate. This makes it all the more important to understand your VAT rates and monitor your charges.

Should my business be registered for VAT?

You can register your business for VAT at any time. However, if your total VAT taxable turnover for the last 12 months was over the VAT threshold of £85,000 (as of 2022) or you expect your turnover to go over £85,000 in the next 30 days, you must apply for a VAT registration.

An electricity bill stating the energy VAT
GAs and electricity bills with a calculator and glasses on top.

Reduced and Zero Rate VAT?

Some businesses can apply for a reduced rate of 5% depending on the type of business and the products/ services they provide. For example, businesses that operate from someone’s home and not-for-profit organisations can apply for the reduced rate. You won’t be automatically placed on this reduced rate even if you are eligible, so you will have to contact your supplier and apply.

You might also be eligible for a reduced rate if you are a small business that uses less than 33kWh of electricity per day or 1,000kWh per month. Or, if you use less than 145kWh of gas per day, or 4,397kWh per month. If your usage is below these thresholds, your supplier should automatically apply the VAT discount to your bill. But, you’ll have to check with them to make sure. This is great for small businesses that operate from home.

How can I apply for reduced VAT rate?

If your business qualifies for a reduced rate you can apply by completing our VAT Declaration Certificate. Or, contact one of our energy experts. They can help you in this process and ensure you are paying the correct amount of VAT.

Can I reclaim VAT on my energy bills?

No, unfortunately, whether you are VAT registered or not, you cannot reclaim VAT paid on your gas or energy bills.

What about the Climate Change Levy (CCL)?

The climate change levy (CCL) is a tax designed to promote business energy efficiency. CCL is charged at the time of supply on electricity and gas, so you will not pay a levy on late payment fees or daily charges. CCL is only charged is you pay the standard 20% VAT rate. Those on the reduced rate of 5% will not pay CCL.

Contact us

Our team of experienced energy advisors are on hand to help you find the best energy contract for your business. We’ll make sure you’re being charged the right rates and getting the best deals for your usage. Contact our team today to find out more about how our total energy management could help your business.

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