Whilst businesses have to pay VAT and Climate Change Levy (CCL) on their energy costs, certain factors change the amount of VAT and CCL that is charged by the energy supplier.

VAT, or value-added tax, is automatically added to gas and electricity tariffs but the rate that is paid fluctuates, whereas CCL is a government-imposed tax to aim to reduce gas emissions. Whilst most businesses will pay a rate of 20% and CCL on units used, some customers may be eligible for a discounted rate of 5% and a CCL exemption.  This would be depending on the type of business that is operated and the way the energy is used.

The De Minimis rule and other exemptions

So how do you know whether you qualify for reduced VAT and a CCL exemption?  In short, the De Minimis rule stipulates usage level that you must remain below to qualify and to be eligible to be billed at 5% VAT your daily average must be no more than:

• 33kWh (1000 kWh per month) of business electricity.
• 5 therms or 145 kWh (150 therms/4397 kWh per month) of business gas.

The consumption is determined by the billing period, so customers may find they receive 20% VAT at times of heightened consumption and 5% at times of year when the consumption is lower.  This is an additional reason why meter reads are important on a regular basis.

Other Qualifying customers

In addition, there are additional customers that can qualify for reduced VAT and CCL and these customers are as follows:

• Whole or part domestic use
• Charitable use
• Care Homes

In cases where consumption is split between business and domestic e.g a farmhouse that is also the business office, the annual consumption will be the first indicator to be VAT charged.  If the consumption exceeds the threshold then a VAT declaration form will require completing.  This allows the customer to notify the supplier of their “consumption split” and for the supplier to bill accordingly.  In this event a customer that uses more than the threshold allowance could still pay a proportion of their bill at 5% whereas the business proportion will remain at 20%.  

All registered UK charities are eligible for 5% VAT and CCL exemptions regardless of consumption.