Energy guide and VAT for charities and non-profits

Energy suppliers often categorise charities as small businesses when it comes to working out their energy bills. But, unlike with most small businesses, there are certain discounts available for charities and non-profit organisations that qualify.

If you run a charity or not-for-profit organisation and weren't aware of this, you could be one of potentially thousands of charities across the UK that are paying too much for their business energy. Here’s more on VAT on electricity for charities, along with the VAT rates you should be paying on your gas bills.

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VAT exemption for charities and non-profits

VAT rules for the charity sector really aren't clear. Charities and non-profit organisations are entitled to a VAT reduction of 15% - from 20% to 5% - on energy used for non-business purposes, as well as exemption from the Climate Change Levy (CCL), which also reduces bills by 5%.

The bad news is that suppliers don't automatically apply these discounts and which means many UK charities end up paying significantly more - as much as 20% - for their business gas and electricity.

A recent study has shown that over a third (37%) of charities did not know they are entitled to claim the reduced VAT and CCL exemption, and even more (74%) were unaware that rebates for overpayment can be claimed as far back as 2009.
The good news is that it’s not too late to take action.

You can still benefit if your non-business use is below 60% of total usage, because the reduced VAT rate can be applied to that 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.

What's the difference between business and non-business use?

Non-business use is where no charge is made for products or services offered by the organisation, or where the only income is a non-business grant (for example, a day centre for the elderly, funded by social services) or voluntary donations. It also includes the provision of welfare services to all distressed people, and if provided consistently below cost - at least 15% (this includes services for the elderly, infirm, handicapped people, the chronically sick and the poor).

Business activities include fund-raising efforts where goods or services are given in return for payment - such as rent, admission fees, catering or a jumble sale.

Does your business qualify for charity energy discounts?

All of the following businesses may be eligible for reduced rate of VAT on business electricity and gas, as well as CCL exemption:

  • Charities (registered or unregistered)
  • Non-profit organisations
  • Village halls, sports clubs, community centres, etc.
  • Free schools and academies
  • Care homes
  • Businesses using less than 4,397 kWh/month of gas or 1,000 kWh/month of electricity.

There are currently more than 200,000 charities registered in the UK, along with a number of smaller, less well known charities that have an income below £5,000 - all of which are eligible for the reduced rate.

Any business that has energy use that falls below the de minimis threshold will also qualify for the reduced rate on VAT. This means that if your business uses 145kWh or less of gas per day (4,397 kWh per month) or 33kWh or less of electricity per day (1,000 kWh per month), then it will also qualify for the reduced rate.

What is CCL?

CCL (Climate Change Levy) is a tax that was introduced to encourage various sectors to improve energy efficiency and cut their greenhouse gas emissions.

The levy is paid by non-domestic energy users on a per-unit basis, but some companies are exempt from paying the CCL, depending on the amount of renewable energy they use, although nuclear power - despite having no direct impact on carbon emissions - is subject to the charge.

Why are charities and not-for-profits overpaying for energy?

There are a number of reasons why charities and not-for-profits are being overcharged for gas and electricity, but it’s usually because stakeholders are unaware of the exemptions and reduced rates and their supplier hasn’t put them on the correct rates by default - unfortunately, the onus for making sure the correct rates are being paid isn’t on the supplier, but on the charities themselves.

This also presents another problem, as those charities who are aware of the reduced rates may consider the business energy comparison process to be too time-consuming and might not have the relevant resources within their admin teams.

That’s where the business energy experts at UKPower can help out, one quick call to us is all it takes to make sure your organisation is paying the correct rates and is with one of the best energy suppliers for charities and not-for-profits. Different suppliers have different strengths and weaknesses, so it’s important to make sure you’re with a provider that can adequately meet the needs of your organisation.

To get started, simply click ‘Compare prices’ in the box at the top of the page.
Another reason is that many are unaware that claims on overpayments can be backdated for up to four years.

Can charity VAT claims be backdated?

Yes, absolutely. You can claim up to four years of back payment. You should expect a rebate from your supplier for the difference between 5% and the standard rate of VAT charged at the time of the bills. UKPower can talk you through your bill and identify whether or not you are in a position to make a claim.

How to apply for VAT exemption for charities?

The first thing you need to do is find out the rate of VAT your organisation is paying on its gas and electricity. To do this, take a look at your latest energy bills, if the VAT rate is the standard 20%, you need to make sure this is changed to the correct rate for future payments and also take the necessary steps to get any previous payments backdated.

It you're eligible for exemptions or rebates, you'll need to fill out a VAT Declaration form, which you can get from your suppliers, or downloaded it online – you can find out more at GOV.UK. Upon receiving a VAT Declaration form, suppliers usually take around 14 days to review the application and return with a decision.

Once this has been done, you then need to see if you can save even more money by switching to a better deal from a charity energy supplier. Enter your postcode at our business energy switching page to start your price comparison.

For more information on VAT discounts or CCL exemption, give UKPower a call on 0800 326 5517.