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How to Claim VAT Relief on Electricity and Gas

VAT is a value-added tax levied by the government on any services or products. As a business, you legally have to pay VAT on the energy you use. However, unlike other goods and services, this VAT cannot be claimed back.

Your business energy will usually be taxed at the standard rate of 20%, which you will be automatically charged by your supplier. Nevertheless, some businesses will qualify for a reduction in the rate of tax they pay on their energy. Read on to find out if this discount may apply to your business.

In this
guide:

Does my business need to be VAT registered?

Legally, you must register your business for VAT if your taxable turnover is more than £85,000 a year. If you have a smaller business with a turnover of less than this, you can still register for VAT if you want to.

Once registered, HM Revenue & Customs (HMRC) will provide you with a VAT registration certificate. This details your VAT number, your date of registration and when you need to submit your first VAT Return and payment.

How does VAT work with business electricity and gas?

VAT cannot be claimed back from your energy bill. This is why it is so important to make sure you have the best energy deal available for your business. Cut down costs by comparing business energy deals with usave - simply fill in the form and you will receive a call back with a free quote tailored to the needs of your business.

Although you cannot reclaim VAT back for business energy, you can usually recover the VAT you have paid for products and services that were purchased to be used by your business. It is important that you keep a note of the business’ purchases so that you can back up your claim. You will need to keep the VAT invoices from all of your purchases.

Although the majority of businesses will have to pay the usual 20% VAT on their energy, your business may qualify for a discount.

Is my business eligible for a VAT discount?

If you meet the requirements, your business may only have to pay a discounted 5% rate of VAT on your business electricity and gas. You may be eligible if:

  • Your business is a charity or a non-profit company.
  • 60% or more of the energy used by your business is used for domestic purposes e.g. care homes or student accommodation.
  • Your business has low energy usage - in this case, your energy supplier should handle the VAT discount for you but it is important that you make sure they have done this.

Low usage is defined as:

  • Less than 33 kWh of electricity per day or 1,000 kWh per month.
  • Less than 145 kWh gas per day or 4,397 kWh per month.

If you are unsure whether your business is eligible for the VAT discount, contact your energy supplier and they will be able to tell you.

If your business is used for both commercial and domestic purposes, then a proportion of your energy bill may qualify for a VAT discount. If eligible, the proportion of energy used for domestic purposes can be taxed at the lowered VAT rate and the rest of your energy at the standard 20% rate.

I think my business is eligible, how do I apply for my discount?

Your energy supplier will automatically add the 20% VAT to your energy bills, so you need to organise the VAT discount yourself.

You need to fill in a VAT declaration form to apply for a reduced VAT rate. Contact your energy supplier to get hold of a form. If your business does qualify for the discount, you can also claim back a partial refund on the extra money you have paid on your energy bills over the past four years.

If your business has more than one energy supplier, then you will need to contact both suppliers and fill out separate declaration forms for each one. The same applies if you have more than one site which is eligible for the discount.

The VAT discount will also make your business immune from other government levies, including the Climate Change Levy.

What is the Climate Change Levy (CCL)?

The CCL is an environmental energy tax implemented to encourage your business to reduce their greenhouse gas emissions and to be as energy efficient as possible. If you qualify for the VAT discount on your business energy then you won’t have the pay the CCL.

Bear in mind that you can still apply for exemption from the CCL if you sign a Climate Change agreement. This is where you agree to make developments in the energy efficiency of your business and reduce your overall energy consumption.

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