Value Added Tax (VAT) is a form of tax imposed by the government on all services and goods which are bought or sold for use or consumption. Your business energy is subject to VAT, and all businesses will need to pay some level of VAT on their gas and electricity bills.
Most businesses will pay VAT at a rate of 20%, but some are eligible for a discount. Your energy supplier will automatically add VAT to your bill, so you need to apply for most discounts separately.
If you’re ready to switch business energy supplier, give us a call on #CAMPAIGNBUSINESSSERVICENUMBER# or leave a few details in the box opposite and we’ll call you back.
Business electricity VAT is charged at 20%. However, to promote energy efficiency and help achieve national targets, the government offers a discounted rate for those who use a limited amount. This is called the ‘de minimis’ level.
Providing you use less than 33kWh of gas per day, or 1000kWh per month, then you should qualify for the discounted VAT on electricity rate of 5%. Your supplier should automatically lower your rate, however, it’s always worth checking your bill and making sure.
Similar to VAT for electricity, VAT on business gas is charged at 20%. Again, there’s the opportunity for the discounted rate of 5%. To be eligible for the lower rate, you’ll need to use less than 145kWh of gas per day. Over one month, this equates to 4,397kWh of gas, while over a year it equals 52,764kWh.
To work out whether or not you can access the lower rate for VAT on gas, check your recent business gas bill and compare your consumption rates with those mentioned. As with electricity, be sure to check your bill and make sure you aren’t being charged the full rate.
In addition to the de minimis level of energy consumption, there are other situations where you may pay reduced VAT on gas and electric bills. These include:
Most businesses only partly qualify for the reduced rate and are therefore best suited to a ‘mixed use’ deal. Put simply, this allows your business to pay a lower rate on the parts of your business which qualify, while the rest pays the standard 20% charge. To qualify, you’ll need to discuss this with your provider or the energy expert in charge of your price comparison.
Finally, you are not able to claim back VAT on gas and electricity bills. Despite the fact it is a business to business purchase, it is not a part of the government’s list of VAT exemptions. That’s why it’s important to use energy experts like USwitchForBusiness to ensure you access whatever reductions are available.
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In 2001 the government introduced the Climate Change Programme, designed to lower emissions nationwide. A big part of this is the Climate Change Levy (CCL) which offers businesses another chance to lower their energy spend.
Put simply, if your usage is under the de minimis level for VAT on gas and electricity, or your business premises are eligible for a VAT discount, you will most likely be exempt from paying the main rates of CCL.
If not, you can sign a Climate Change Aggreement (CCA) which will give you the chance for discounts of up to 90%. By signing a CCA, you agree to make improvements to your energy efficiency, thereby reducing your average consumption.
Talk to uSwitchforBusiness today on 0800 188 4930 to hear how we can help you find the best deal for your business. We’ll run a business electricity plan comparison and take care of all the details involved in switching.