VAT for Business Gas & Electricity
Your business’s energy bill is made up of several different charges. Wholesale energy costs, the Transmission Use of System (TNUoS) charge, the Distribution Use of System (DUoS) charge, metering costs and supplier’s margins all contribute to what you pay for your unit rate and standing charge. On top of this, there are two taxes that are levied on your business energy bill, the Climate Change Levy (CCL) and Value Added Tax (VAT).
What is the Climate Change Levy
The Climate Change Levy (CCL) was introduced to the UK in April of 2001 and is an environmental energy tax levied by the government on business customers in the industrial, commercial, agricultural and public service sectors. It’s designed to encourage businesses to be more energy efficient and reduce greenhouse emissions. Residential energy consumers, most charities and business customers who consume very small quantities of energy, don’t have to pay it.
The Climate Change Levy is charged on ‘taxable commodities’ such as natural gas, electricity, petroleum and hydrocarbon gas in a liquid state, coal, lignite and coke. The levy isn’t charged on road fuel and other oils as they’re already subject to excise duty.
How is VAT charged on business gas and electricity?
Value Added Tax (VAT) is levied by the government on services and goods. Businesses are legally required to pay VAT on their energy and although it’s a business to business purchase, it can’t be claimed back.
VAT is charged as standard at a rate of 20% on business energy and it will automatically be added to your bill by your energy supplier. You’ll be able to see the VAT rate your business is being charged along with a full list of your other charges on your energy bill.
Are any businesses exempt from paying VAT on energy?
If a company uses less than 33kWh of electricity or 145kWh of gas per day, VAT can be reduced to as little as 5%. Charities and other non-profit organisations can also benefit from a VAT reduction on energy used for ‘non-business purposes’. A ‘non-business purpose’ is when no charge is made for products or services offered by the organisation, where the only income is a non-business grant or voluntary donations or in cases that involve the provision of welfare services to distressed people (the elderly, infirm, handicapped, chronically sick and poor) consistently below cost (at least 15%).
You can still benefit if your non-business use is below 60% of total usage as the reduced VAT rate can be applied to the eligible proportion of the supply. For example, if 35% of energy use is non-business, 35% can be taxed at 5% and 65% at the standard VAT rate.
Unfortunately, these reductions aren’t automatically applied by suppliers. Rather qualifying organisations have to apply for it, meaning many end up being over charged. Rebates for overpayments can be claimed as far back as 2009.
Is your business eligible for a reduction in VAT?
To find out if your business is eligible for a reduction in VAT, contact your supplier who will discuss your unique situation with you. If they think you qualify for a VAT reduction, they’ll direct you to fill in and return a Business Energy VAT form. If you have more than one qualifying site, you'll need to fill out a separate certificate for each. If you use separate suppliers for your business gas and electricity, you’ll need to contact both suppliers and fill out a separate form for each.
To hear more about how MoneySuperMarket could help you reduce your business energy costs, call one of our expert energy advisors today on 0800 088 6986.