VAT rules for charities and non-profits

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Energy suppliers usually treat charities like small businesses when it comes to energy bills, but wrongly so – unlike small businesses, there are certain charity discounts available for those who quality.

If you were unaware of this and run a charity or not-for-profit organisation, you could be one of potentially thousands of charities across the UK that are paying too much for their energy bills.

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 - from 20% down 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%. Unfortunately, suppliers don't automatically apply these discounts and which means many UK charities end up paying significantly more - around 20% more - for their energy.

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 the charity discounts?

All of the following businesses may be eligible for reduced VAT and 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.

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?

Those eligible for exemptions or rebates will need to fill out a VAT Declaration form, which can be obtained from suppliers, or downloaded 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.

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

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