VAT on business electricity and gas

If you run your own business you’ll understand how important it is to keep unnecessary expenses to a minimum – including VAT. Which is why it’s good to know that you could be eligible for lower VAT on business electricity bills, as well as gas use.

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How much is VAT on gas for small businesses?

Gas for business use is charged at 20%, but if you use less than a certain amount (known as the ‘de minimis’ level), then you could pay just 5% VAT instead.

To qualify, you should use less than 145kWh of gas each day, or 4,397kWh per month (or 5 therms per day, 150 therms each month).

How much is VAT on electricity for small businesses?

Business electricity is also charged at 20%, and just like gas – if you use less than the de minimis amount, which is 33kWh of electricity each day (or 1,000kWh per month), then you could qualify for the lower rate of 5%.

If you aren’t sure how much energy your business uses, then your supplier should be able to tell you – it’s always worth investigating as it could lower your VAT on electricity for business use, as well as your gas bill.

Are there any other exceptions to paying full VAT on business gas and electricity?

Your business could also be eligible for reduced VAT on business electricity and gas if at least 60% of the energy is being used within:

  • A domestic or institutional setting – such as a care home or hospice, accommodation for students, the armed forces or the elderly, or a place of rehabilitation. To qualify, the building will need to be the main place of residence for 90% of people living there.
  • A religious environment, such as a nunnery, monastery or any other place of worship.
  • Self-catering holiday accommodation, including houseboats and caravans.
  • A free school or academy.

What is mixed use?

Mixed use is when your business premises is used for a number of purposes.

You’ll qualify for lower VAT as long as the majority (60%) of energy is being used for a qualifying exception. If you’re using less than 60% then you’ll be charged VAT at differing levels according to the various parts of your business.

For example, if one part of your premises is being used as student accommodation, then that part will be charged at the reduced VAT rate of 5%. If a different part of your building is being used for a business that doesn’t fall into a qualifying category – then the energy used there, will be charged at the standard 20%.

What if you run a charity or non-profit organisation?

If you run a charity (registered or not) it’s more than likely that your VAT on business gas bills and electricity, will be charged at the lower rate of 5%.

If this is the case, then you’ll probably also be exempt from paying the Climate Change Levy – which could shave a further 20% off your energy bills.

Can VAT claims be backdated?

They can, and if you think you’ve been paying more VAT than you need to, then you could claim up to four years’ worth of back payments. Any rebate will be the difference between 5% and whatever the standard VAT charge was at the time you’re claiming for.

How to apply for reduced VAT on gas for business use and electricity bills

If you think your business qualifies for lower VAT on electricity bills and gas use, then you’ll need to fill out a VAT declaration form which should be available to download from your supplier – or, you can ask them to send you one.

It usually takes energy providers around 14 days to process your application and reach a decision. If you need any more information about claiming back VAT, take a look at Gov.UK, how to claim relief.

But if you’re really not sure about how much VAT you should be paying and want some advice, then pick up the phone and talk to us – we’re here to help – so call us now on 0800 688 8773.

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