VAT & Business Energy

July 16th, 2020
VAT

We’re all familiar with VAT. This government tax applies to all goods and services including the energy you use.

If your business is VAT registered, you can claim back VAT on all goods and services purchased for business use. The bad news is that you can’t claim back VAT on utilities. The good news is that you may be eligible for a VAT discount on your business energy.

But beware. Even if your business qualifies for reduced VAT, your provider may be applying it incorrectly, or not at all. That’s why now, more than ever, it’s important to get the best deal on your business energy.

What is a VAT registered business?

If your business has a taxable turnover of £85,000 or more per year then legally you must be registered for VAT. Businesses with a lower turnover don’t have to be registered, but you may choose to do so. The current rates of VAT which apply to energy business use are 20%.

When you register you’ll receive a VAT registration certificate with your VAT number, the due date of your first VAT return and payment and your effective date of registration when you exceeded the threshold or asked to become a VAT registered business. You won’t be able to claim back VAT on utilities, but you can recover VAT on other products and services used by your business.

Who can get VAT registered?

Most businesses can be VAT registered but some firms are also eligible for a VAT discount on their utilities. This means you only pay a discounted rate of 5% VAT on your business gas and electricity. You could be eligible for a discount if you meet any of the following criteria:

  • You’re a non-profit business or a charity
  • More than 60% of your energy use is for domestic and non-commercial purposes, e.g. in schools, children’s homes, student accommodation or care homes
  • If your business has low energy usage

You’ll qualify as a low energy user if:

  • Your businesses uses less than 33 kWh of electricity per day or 1,000 kWh per month
  • Your business uses less than 145 kWh gas per day or 4,397 kWh per month

Your energy supplier should be able to tell you whether your business is eligible for a discount and handle it for you. That’s why it’s important to stay on top of your contract and your renewals so you never pay more for your energy than you should. If you qualify for a reduced rate of VAT as a low energy user you won’t have to pay the Climate Change Levy (CCL).

There are other ways to get a reduction on your utility bills if you’re not eligible for a VAT discount:

  • You may be eligible for a reduction of VAT by signing a Climate Change Agreement. This earns you a discount on CCL by agreeing to reduce your business energy use and emissions
  • If your business uses energy for commercial and domestic purposes, then your domestic utilities should be eligible for a lower rate of VAT. You’ll need to complete a VAT declaration certificate which declares the qualifying percentage of energy use

How can I claim my VAT discount?

If your business is eligible for a VAT discount, you’ll need to apply for it yourself. You’ll need to fill in the VAT declaration form which your current energy supplier should provide for you. If your energy is supplied by more than one supplier you’ll need to get forms from all of them. This also applies if your business operates from more than one site.

It usually takes your energy provider 14 days to process your application and make a decision. If you think you’ve been overpaying on VAT for a long period, you can make a backdated claim for up to 4 years worth of overpayments. You’ll be reimbursed at the difference between 5% VAT and the standard VAT charge. Remember when you change supplier, you’ll need to complete your new provider’s VAT declaration forms to make sure that you continue to benefit from the reduced rate.

How to ensure you don’t pay more than you should on your business utilities VAT

If you want to stay on top of your business energy VAT costs, here’s what you need to do:

  • Check that your energy supplier is automatically applying your VAT discount on every bill
  • Keep on top of the accuracy of the VAT associated with your energy bills
  • Stay on top of your contract renewals to get the best deal on your business energy

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The rules around business energy can be complex and diverse without worrying about whether you’re overpaying on your VAT. We can help you find the best deal on your business energy so that all you need to do is apply for your VAT discount.

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