VAT for Business Energy Consumers
There are two rates of VAT applicable to business consumers of electricity, gas and other sources of fuel or power. These rates are known as:
- the standard rate
- the reduced rate
The reduced rate is currently 5% and is applied to all business energy consumers that do not exceed the low usage threshold as defined by HMRC.
Also known as 'de minimus', if a business has a level of energy consumption that does not exceed this level it will effectively have VAT applied to the energy bill the same as if it was a domestic residence.
Do I need to claim?
No. Your energy company should automatically apply the correct rate of VAT that applies to your level of energy consumption. And of course if your business is VAT registered you will no doubt be claiming back the input component anyway.
However, it will pay to check that your energy bill is being correctly calculated as the incorrect application of VAT could lead to two unwanted effects:
1. Even if you claim your VAT back, paying at the current Standard rate could have serious implications for your cash flow. And at a time when liquid funds are at a premium, you don't need them tied up unnecessarily with an energy supplier.
2. Business users who fall under the low usage threshold, should be excluded from paying the CCL (Climate Change Levy). So if you have been incorrectly assessed as having to pay at the standard rate, you will also be paying the additional CCL component as well.
Irrespective of your level of use, certain organisations may be able to claim 'charitable non-business use' in order to reduce their energy bills. For example, covering premises such as those used by charities, for education purposes, worship, community use, it will depend on how your organisation is set up from a commercial viewpoint as to whether you will be able to claim preferential treatment.
It may be worth checking to make sure you are paying the correct amount. And be aware that if you are operating from premises which has a mixed-use profile, you may be able to claim for any proportion of use that falls into the 'charitable, non-business' category, providing you can accurately define the split in usage.