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VAT Declarations for Business Energy

VAT is normally charged at 20% on business energy. However in certain circumstances a business energy customer can qualify for a reduce VAT rating and only need to pay the domestic rate of 5%.

The circumstances that give rise to this are:

  • Energy for charity non-business qualifying use
  • Energy where the amount supplied does not exceed the domestic qualifying use de minimis limits
  • Energy with at least 60% being eligible for qualifying use

What is qualifying use?

Qualifying use means:

  • 'Domestic use' or
  • 'Charity non-business use'

De minimis

Domestic use is usage below a set level. This has become known as the de minimis level. Regardless of whether you are a business or domestic customer if you consume less than these levels you will be considered to be of ‘domestic use’ and be eligible for VAT at the reduced rate of 5%

The de minimis for a gas customer is where daily usage is not more than an average rate of 145kWh (4,397kWh per month) of piped gas to one customer at any one of the customer’s premises. This limit applies whether the bill is based on a meter reading - by either the supplier or the customer - or on an estimate.

For electricity customers the consumption must be no more than an average rate of 33kWh per day (1,000kWh per month).

Therefore a gas customer with an annual consumption of less than 52,764 kWh and an electricity customer with an annual consumption of less than 12,000 kWh will attract a VAT rate of 5%.

Crucially a business in this situation does not need to complete a VAT declaration certificate to apply the reduced rate, your energy supplier should do this for you automatically.

Domestic

In addition to the de minimis rules, some customers that exceed these levels also rate as domestic use only.

Primarily this is if they are for use in a dwelling or certain types of residential accommodation (excluding hospitals, prisons or similar institutions, hotels or inns or similar establishments). Examples are:

  • children’s homes
  • homes providing care for –
    (a) the elderly or disabled
    (b) people with a past or present dependence on alcohol or drugs
    (c) people with a past or present mental disorder
  • hospices
  • institutions that are the sole or main residence of at least 90 per cent of their residents
  • monasteries, nunneries and similar religious communities
  • school and university residential accommodation for students or pupils, and
  • self catering holiday accommodation.

What is 'charity non-business use'?

Where a charity does charge for its services, its activities are assumed to be ‘non-business’.

Supplies of energy to non-business activities such as these also attract the reduced rate of VAT.

What is ‘mixed use'?

If a business premise is partly used for qualifying use and partly for non-qualifying use, and 60% or more of the energy is for the former then the entire supply will be treated as being eligible for VAT at the reduced rate of 5%.

If less than 60 per cent of the energy is for qualifying use, different VAT treatments should apply to both the qualifying and non-qualifying proportions. Under this scenario VAT will be charged at the reduced rate of 5% on that portion which is for qualifying use, and VAT will be charged at the standard rate of 20% on that portion which is for non-qualifying use

VAT Declaration Certificates

Customers that are eligible for reduced rate VAT payments under ‘Charity – non business use’ and ‘Mixed use’ require a VAT declaration certificate to be completed within which they will need to declare the percentage of the energy that is supplied for ‘qualifying’ use.

They will need to ensure that they provide a separate declaration for each energy supply delivered and for each supplier they are contracted with.

When they change supplier they will also need to ensure that they complete their VAT declaration forms to ensure their eligibility for the reduced rate remains in place.

Below is a set of links for the VAT declaration certificates for each of the business energy suppliers. If you think your business qualifies for reduced rate VAT use these to declare your position to your energy supplier. Remember you will need to complete a form for each combination of site & supplier.

Visit our dedicated supplier pages to source your VAT declaration certificate.

For more help with VAT and to find out whether your business can benefit from reduce rate payments give us a call on 0800 051 5770, we’d love to hear from you.