Guide to understanding VAT on business energy bills.

Article posted

22nd Mar 2023

Read time

5-9 min read


Mollie Pinnington

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What is VAT?

When it comes to business energy bills, one term you may have come across is "VAT." This is essentially a levy a business must pay on many of the goods and services they acquire. This can include electricity and gas used in the running of businesses. The rate of VAT usually depends on the type of business you run and the level of usage. Additionally, some businesses may be allowed to claim back VAT or even be exempt altogether. As such, it's important for any business to understand its exact VAT obligations when it comes to its energy bills.


Can your business VAT be lowered?

Businesses pay a much higher amount of VAT on their energy bills than domestic customers. This is actually quite a lot higher, with businesses having to pay 20 % compared to the much smaller 5% that domestic customers can expect. This is done because businesses tend to have much higher levels of energy usage than the average household and therefore need more support from a cost perspective.

However, with a lower usage level your business could benefit from also paying VAT at the 5% level. This is called the “de minimis” VAT rate.


What is the “de minimis” VAT rate?

Your business could save a significant amount of money by taking advantage of the "de minimis" VAT rate. It allows businesses to lower their VAT rate from the standard 20% to just 5%, provided they use less than 12,000 kWh of electricity and 52,764 kWh of gas per year. If your business can reduce usage to fit in with this threshold, it would massively reduce how much you will have to pay on top of your energy bills. Not only is this a great way to trim costs, but it helps reduce waste while also supporting an eco-friendly lifestyle. Find more about reducing your energy consumption here.


How to find out if your business is eligible for VAT reductions

If you're a business owner, saving money on your energy bills can be a challenge. One way to cut down on your costs is to register for lower VAT rates, which can be done quickly and efficiently using an up-to-date VAT declaration form. Not only can this form give you access to lower VAT rates, but it can also enable you to receive rebates on overpayments made in the last four years. Your business could benefit greatly from registering with lower VAT rates and taking advantage of this claim opportunity. Don't miss out – get yourself signed up today! You will be able to get a VAT declaration form from your energy supplier. If you are one of our current customers and are struggling with this, get in touch with your account manager to see if we can help.


When should your business be paying VAT?

For businesses, the decision of whether to voluntarily register for value-added tax can be difficult. While registering for VAT may seem like a hassle, it could potentially result in many advantages. Being registered for VAT has the benefit of being able to reclaim any VAT that you incur while running your business and enables your customers to claim back any input tax that has on your goods or services. To ensure your business remains compliant with HMRC regulations, it is important to properly understand when you are required and allowed to register for VAT. If your business’s annual turnover surpasses the threshold of £85,000 you will be required to register for VAT.  However, you can volunteer to do that earlier if it makes sense from a financial standpoint to voluntarily apply.


VAT and energy bills

As a business owner, it is important to be aware of what goes into your energy bill and that not all costs are included in a quote. While quotes can provide an estimate of the energy costs that you will need to pay each month, they do not include Value Added Tax (VAT). Since businesses are subject to different rates of VAT, this component is not automatically factored into the energy bill but must be added on separately. Being aware of this will ensure that you are better prepared for meeting your monthly energy costs.


Other VAT reductions that may be available

Charitable or non-profit organisations in the UK can enjoy some financial relief through reduced VAT on energy bills. To be eligible for this kind of benefit, however, a rigorous set of conditions need to be met that are laid down by HM Revenue Customs (HMRC). These will largely depend on the size of the organisation and what type of activities it is conducting. As such, it is important to familiarize yourself with HMRC's rules and regulations that govern reduced VAT eligibility. In this way, charitable institutions can ensure they meet all criteria and avail themselves of this beneficial tax relief.

If you're looking to save money on your energy bills then why not get in touch today? The relationships Resolve Energy has developed with over 24 of the UK’s biggest business energy suppliers allows our energy experts to source the best business energy rates available for your company right when you need them. Request a free quote today and start saving money on your energy.

Looking to pay less on your energy bills?

Get a free quote today