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VAT and Business Energy

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Value-added tax, or VAT, is a tax that applies to the cost of a good or service. This includes gas and electricity bought from an energy supplier.

The standard rate of VAT in the UK is 20%.

Energy companies will charge 20% VAT on business energy bills, but some will qualify for a discounted rate of VAT. This discounted is 5%.

Does my business have to pay VAT and how much?

Standard VAT on commercial electricity and business gas bills applies if annual turnover is more than £85,000.

If your business falls into this category you need to register for VAT with HMRC. Once you have applied, you will receive a VAT registration certificate.

Energy suppliers will charge VAT at a standard rate. So if you are eligible for the discounted rate, you will need to inform them to alter your bills.

Does my company qualify for discounted VAT?

Your business will qualify for a 5% discounted rate if any of the following apply:

  • Your company’s gas usage is less than 4,397 kWh per month, and business electricity usage is 1000 kWh per month;
  • You run a charity or non-profit;
  • 60% or more of the energy used by your company is for domestic purposes.

You need to contact your energy supplier if any of the above apply to qualify for the 5% rate.

Does my company have to pay the CCL?

Some businesses are also eligible for the Climate Change Levy, which is an additional energy tax. The Government sets these rates every year to encourage energy efficiency.

The following sectors are applicable for the CCL:

  • Industrial
  • Commercial
  • Agriculture
  • Public services

You do not pay the main rate of CCL on certain supplies, for example, if you’re a:

  • A company that uses small amounts of energy
  • A domestic energy user
  • A charity engaged in non-commercial activities

Are you paying the correct VAT?

If you suspect you're paying the incorrect amount of tax, you need to check your companies eligibility. You must then inform your supplier of the change.

You should submit a VAT declaration form to your energy supplier if you have been overpaying on VAT. In most cases, this will allow you to claim a tax rebate.

Will my business pay VAT on solar panel installation?

Investing in solar panels can help you become more energy efficient. You can access discounted rates of VAT for the installation of solar panels for your home.

VAT-registered businesses can claim VAT on solar panels back on their quarterly returns. For the majority of companies, if you want to install solar panels, you will need to pay the standard 20% VAT rate.

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