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VAT Declarations for Business Energy

When you compare business energy deals, factoring in your VAT rate may not seem like a big deal - but you could be paying too much. Normally, VAT is charged at 20% on business energy. But it some circumstances, a business energy customer can get a reduced VAT rating, meaning they only need to pay the domestic rate of 5%. The following circumstances normally bring this about:

  • Energy for ‘charity non-business use’. ○ Where a charity doesn’t charge for its services, its activities are said to be ‘non-business’.
  • Energy where the amount supplied does not exceed the domestic qualifying use (de minimis limits).
  • Energy where at least 60% is eligible for qualifying use.

Unless you inform your energy supplier, VAT will be applied to your business energy invoice at the standard rate of 20%. Read on to find out whether you are eligible for the reduced 5% rate.

In this
guide:

What is ‘De Minimis’?

Domestic use is usage which falls below a certain level. This level is known as ‘de minimis’. Whether you’re a business user or domestic energy customer, if you consume less than de minimis, your usage will be considered domestic and you are eligible to pay only 5% VAT compare to the higher business rate of 20%.

If you’re a gas customer, the de minimis is a daily usage not exceeding an average of 145kWh of gas, to one customer at any one of their premises. The limit is applicable regardless of whether the bill is based on a meter reading (by you or by the supplier), or on an estimate.

If you are an electricity customer, your consumption can be no more than an average rate of 33kWh per day.

If your business uses less energy than this, you don’t need to complete a VAT declaration certificate to get this reduced rate as your energy supplier should do this for you automatically.

Other businesses that can receive domestic VAT rates

Some businesses that exceed de minimis can also qualify for domestic energy VAT rates. This is primarily for instances when the energy is used in a dwelling, or some type of residential accommodation. Some examples of these include:

  • Children’s homes
  • Homes that care for the elderly or disabled; those with alcohol or drug dependency; or those with a mental disorder
  • Hospices
  • Institutions that act as the sole residence of at least 90% of residents
  • Nunneries, monasteries and similar religious communities
  • School and university residential accommodation
  • Self-catered holiday accommodation

Exceptions to this rule are hospitals, prisons, hotels and inns.

What is ‘mixed use’?

If your business premises’ energy is used for both qualifying use and non-qualifying use, as long as 60% of the energy is qualifying, the entire supply will be charged at the 5% domestic VAT rate.

But if less than 60% of your business’ energy is for qualifying use, then the two proportions should have different VAT treatments. If this applies to you, then you will still get the 5% rate on energy used for qualifying use. However, that which is used for non-qualifying use will be charged at the normal 20% rate.

Do I need a VAT declaration certificate?

If you are eligible for reduced rate VAT payments, for either ‘charity non-business use’ or ‘mixed use’, then you need to have a VAT declaration certificate completed. You can get this from your business energy supplier. One VAT certificate will cover both your gas and electricity, if both energy types are supplied by the same company.

Within this, you need to declare the percentage of your energy that is supplied for ‘qualifying’ use. So, if your business is a hospice with a cafe, you need to work out what percentage of energy goes towards supplying each.

You then need to ensure that you provide a separate declaration for each energy supply delivered, to each supplier that you’re contracted with. When you switch energy supplier, you should also ensure that you complete your VAT declaration forms, to make sure your eligibility for the reduced VAT rate is secured.

If you need a rebate and are moving premises, then you need to complete a VAT certificate for your current premises. If your new premises also qualify for the reduced VAT rate, then you will need to complete a new VAT certificate for this property as well.

If after reading this guide, you’ve realised that you’ve been paying too much VAT on your business energy, then you can apply for a VAT rebate for the past four years of energy usage. You can get a rebate form from either your energy supplier or from HMRC.

What is the Climate Change Levy (CCL)?

The Climate Change Levy (CCL) is a tax that is applied to business energy deals, to encourage commercial customers to increase their energy efficiency and reduce their business’ emission levels.

If you’re eligible for discounted VAT, you would probably also qualify for immunity for the main rates of CCL. But if you aren’t eligible for immunity, you can receive a discount on CCL tax by signing a Climate Change Agreement (CCA). The terms and conditions of a CCA mean that when you sign, you must make some alterations to your business to improve energy usage and reduce emission levels.

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