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As a business operating in the UK, there are some savings you can make around VAT on business electricity. If a company meets certain criteria, they may be able to lower this rate to just 5% – in this guide, we will help you navigate the potential savings that could benefit your business when it comes to electricity VAT.
VAT (value-added tax) is levied on the cost of a good or service, including gas and electricity from an electricity supplier.
The standard rate of VAT increased to 20% on 4 January 2011 (from 17.5%).
Some items are exempt from VAT, such as postage stamps, and financial and property transactions. Some organisations are even exempt from paying full VAT and will pay a discounted rate, such as charitable institutions and businesses that have a turnover of less than £85,000 per year.
Companies will have to pay VAT on business electricity and commercial gas bills if their annual turnover is more than £85,000 per annum.
Businesses are required to register for VAT with HMRC, once you have done so they will send you a VAT registration certificate.
Unfortunately, even though business electricity is an essential service VAT is applicable and will be applied to your bills.
Many businesses will pay a 20% VAT rate on business gas and electricity bills.
You may be eligible for a 5% discounted rate if any of the following apply:
On top of VAT reductions, some businesses are also eligible for the Climate Change Levy (CCL). The CCL is an additional electricity tax and rates are set every year by the government in an effort to encourage businesses to become more conscious of their carbon footprint.
There are two rates in the CCL:
The primary levy rate – If your business pays a 20% VAT rate, then if you are in one of the CCL-targeted industries, you will pay the full CCL rate.
Carbon Price Support rate – This is only applicable if you run a large-scale electricity-generating complex.
Solar panels are a great way to minimise your electricity bills and make your business more sustainable and less reliant on fossil fuels.
Discounted rates of VAT apply for the installation of solar panels in residential accommodation, such as:
VAT-registered organisations can claim the VAT on solar panels back on their quarterly returns, but for other businesses, 20% VAT for the cost of solar panels will apply.
Are you paying the correct business VAT?
You may not be paying the correct rate of VAT if you haven’t informed your electricity supplier that you are eligible for a discount. electricity providers apply the standard 20% rate to business electricity bills, meaning that if you are a charitable organisation, or are otherwise eligible, you may be able to apply for a rebate.
Save money on your electricity bills.