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Do charities pay VAT on energy bills?
If you’re running a charity – you want to make sure that every pound you spend counts.
Charitable enterprises are exempt from VAT on many products and services that businesses have to pay.
VAT relief is available to charities to ensure that if you run a registered charity you do not have to pay full price for your business electricity and gas. However, you do have to apply and inform your business energy supplier that you are eligible for a reduced VAT rate before this can be applied.
At Business Energy Prices, we are passionate about ensuring our business energy customers do not overpay for the energy they use. Charities across the UK are paying full VAT for their business energy, often without realising they could be saving up to 15% on their gas and electricity bills each month.
Do charities have to pay VAT?
Business energy for charities is a significant overhead for many social enterprises and charitable organisations. The standard VAT charge on business gas and electricity bills is 20% and this can significantly increase your energy costs.
Many registered charities are eligible for a 5% rate of VAT on their energy bills. Additionally, eligible charities are also exempt from the Climate Change Levy (CCL) which is applied to business energy bills. However, the eligibility criteria can be complicated to understand. You must be registered with the Charity Commission and be registered with HMRC to qualify.
A charity will pay the reduced 5% VAT on business gas and electricity bills if you use 60% or more power at your premises for one of the following, which are classified as non-commercial activities:
- Residential accommodation (for example, a children’s home or residential home for the elderly)
- Charitable non-business activities (for example, a community centre or animal shelter)
- Small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of up to 2,300 litres of gas oil)
If the energy in your premises is used for both business and charitable purposes, things get a bit more complex. In this case, you will pay the standard rate on the part of your bill (up to 60%) that is used for commercial purposes. If more than 60 per cent qualifies as charitable usage, the reduced or zero rate is chargeable on your whole bill.
How does a charity apply for a reduced, or zero VAT rate?
The 5% reduced VAT rate is sometimes referred to as a zero rate. If you are a charitable organisation, you will need to inform your energy supplier so that they can move you to a zero rate.
Your energy supplier will ask you to fill in a VAT declaration form which is available on the HMRC website. Your energy supplier will also need to see a document confirming your charitable status, such as the registration number from the Charity Commission.
VAT exemption certificate for charities
A VAT declaration form needs to be completed if you are eligible for a reduced 5% VAT rate on your energy bills. This document needs to be sent to your energy supplier. They may also ask for proof of your registration with HMRC or your Charity Commission registration number. The good news is that most energy suppliers will backdate overpayments of VAT up to four years retrospectively. This is another incentive to contact your energy supplier as soon as possible.
Be aware that you are also obliged to contact your energy supplier if your premises changes from a charity occupation to a solely business operation. If you have been on a zero rate, your energy supplier will switch you to a normal VAT rate and can also retrospectively apply charges.
Business Energy Prices help business energy customers from across the UK to find the best value business energy tariffs.
To discover how you can reduce your energy bills with Business Electricity Prices, get in touch with us today.
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