VAT is normally charged at 20% on business energy. However in certain circumstances a business energy customer can qualify for a reduced VAT rating and only needs to pay the domestic rate of 5%.
The 5% VAT rate applies to:
- Qualifying use supplies of energy for domestic use (including supplies to landlords for use by domestic tenants, and supplies to residential properties such as care homes and student accommodation).
- Qualifying use ‐ supplies of energy for use by a charity for non-business purposes.
- If 60% or more of the energy supply is for qualifying use then the whole supply will be subject to VAT at 5%.
- If less than 60% of the energy supply is for qualifying use then 5% VAT will be applied to that percentage of the supply. Please show the actual qualifying use on the VAT Declaration form.
Business customers who use less than 1,000 kWh of electricity per month, OR less than 4,397 kWh gas per month will automatically get charges at 5%.
Find out more
For more information on VAT applicable to energy supplies, please contact the HMRC VAT helpline on 0845 010 9000 or visit the HMRC website where VAT Notice 701/19 covering Fuel & Power can be found.