Understanding VAT & Climate Change Levy on Business Energy Bills

It is no secret that the UK's energy costs have skyrocketed.

VAT contributes to this cost, and some businesses are eligible for reduced VAT. If you want to know how you may decrease the amount of VAT your company pays, then you're in luck because we have put together a guide to help you determine whether you're eligible for reduced VAT.

Firstly what is VAT?

VAT (Value added tax) is a government tax on goods and services. VAT is charged at three different rates which are:

• Standard rate of 20%- Majority of goods and services.
• 5%- Some goods and services(Some health products, children's car seats, energy for selected businesses.
• 0%- Most food and children's clothing or second-hand goods.

Does my business have to be VAT registered?

If your total taxable turnover for the last 12 months goes over £90,000, the VAT registration threshold from 1 April 2024, you must register for VAT. You must ensure you are VAT registered within 30 days of exceeding the threshold. You can do this via the government website. Once you are VAT registered, you should receive a VAT certificate and details regarding when you must submit a VAT return.

On your VAT registration certificate, the following will be confirmed:

• Your VAT number

• Your effective date of registration (This is the date your business went over the £85,000 threshold or the day your company requested to be VAT registered).

• When to submit your first VAT return and payment.

Your business can also be VAT registered if its turnover is less than £85,000; however, it is not a legal requirement.

It just means that you can charge VAT on invoices and claim it back on services, such as energy costs.

It is not always possible to claim VAT back, so before doing this, you should carefully consider your business's costs and decide whether this is right for your business.

What does it mean if my company is VAT-registered?

If your company is VAT registered, then most goods and services purchased from you will include 20% VAT in the price. Every three months, you will be required to pay this VAT to HM Revenue and Customs (HMRC)

Business gas and electricity are also subject to VAT, and if your business is VAT registered, you could recover that VAT as input tax on your business expenses, subject to normal VAT deduction regulations.

How much is VAT on business gas and electricity?

The standard VAT rate for business gas and electricity is 20%. However, some companies are eligible for a reduced VAT rate of 5%. The reduced VAT rate will not be automatically added to your energy bills if you qualify; you will need to apply for the discount separately.

Is my business eligible for a discounted VAT rate?

Your business may be eligible for a discounted VAT rate if:

• You are a micro business, and at least 60% of your business's energy is used for residential accommodation or dwellings.
• You are a charitable or non-profit organisation e.g. free schools, places of worship.
• Your business uses less than 33kWh of electricity per day or 1000 kWh per month.
• Your business uses less than 145 kWh of gas per day or 4397 kWh per month.
• If you work from home and at least 60% of the energy at the property is used for domestic purposes, the whole supply can be charged at 5%. Below 60%, the supply is apportioned between the 5% and 20% rates.

You will need a valid VAT certificate to receive a discounted VAT rate of 5% from your supplier.

If you have one and have submitted it to your supplier, then you should automatically be given the discounted VAT rate on your energy bills. (Purely Energy can do this for you).

If your business is eligible for the reduced VAT rate, you can apply for a partial refund of any overpaid VAT, backdated up to four years. Eligibility also brings automatic exemption from certain government levies, such as the Climate Change Levy.

You must contact your supplier and fill out a declaration form to make a claim.

If any of the following apply to your business, then you will need to contact multiple suppliers to receive the partial VAT refund:

• You have switched energy suppliers in the past four years / for the period you claim for.
• You have more than one energy supplier (e.g. different suppliers for gas and electric / multiple meters).
• Your business has multiple sites which are eligible for the discounted VAT rate.

How do I find out how much VAT I am paying?

Your energy bills show the VAT rate you are charged. They should show the amount of VAT you have paid that month and the VAT rate you are paying. If you are struggling to find this information or are unsure of the details, please do not hesitate to contact us. We would be happy to assist you.

Do business energy quotes include VAT?

Business energy quotes do not include VAT. This is because some businesses pay the reduced 5% tax rate. If you're worrying about how much VAT you'll be paying on your energy bills, feel free to contact our team of experts. We'll work out your business's specific VAT requirements for you.

What is Climate Change Levy (CCL)? The climate change levy (CCL) is a tax to ensure sustainable business energy usage. The overall aim of CCL is to reduce the output of greenhouse gases. The more energy efficient your business is, the less CCL you will have to pay.

If your business qualifies for a reduced VAT rate, then your business will also be exempt from CCL charges.

How is Climate Change Levy(CCL) charged?

CCL is charged in two separate rates

• The main levy rate – If your business pays a 20% VAT rate, then you will also be required to pay a CCL.
• Carbon price support rate – This is paid by the owners of electricity generating stations and operators of combined heat and power (CHP). Generate your own energy and earn through a feed-in tariff or the smart export guarantee? You'll likely avoid this fee, as you'll be classed as a small generator.

Is VAT charged on CCL?

Yes, VAT is also added to the CCL rates at 20%.

Climate Change Levy Exemptions.

You may be exempt from paying CCL if any of the following apply to you.

• You receive the discounted tax rate (5%)
• You are a domestic energy user
• You are a charity that is engaged in non-commercial activities.

How can I save further on my energy costs?

Energy bills have been skyrocketing lately, and here at Purely Energy, we understand that it can be challenging. That's why if you have any questions about how your business can save money on its energy costs, we would be more than happy to help. Please don't hesitate to contact us on 0161 521 3400 or email us at Info@purelyenergy.co.uk, and we will put you in touch with one of our energy experts.