VAT “Value Added Tax” is a government tax on services and goods. It applies to goods that are bought or sold for consumption or use, including sports, utilities, transportation, and financial services.
The standard UK VAT rate is currently 20%, but there are other VAT rates you need to be aware of as a business, including reduced rates charged at 5%.
Do I have to pay VAT on gas and electricity for businesses?
VAT is paid on all commercial and domestic uses of energy. This means that you will pay VAT on the gas and electricity you use to work, whether you are on business premises or work from home. And while the commercial energy payment is a business-to-business transaction, you can’t claim a VAT refund like you could with other similar transactions.
How much is VAT on electricity for business?
For most companies, the VAT rate on electricity and gas is 20%, some are eligible for a discount. Your commercial energy provider will automatically add VAT to your bill, so you’ll need to apply for the discount separately.
All businesses will need to pay some level of VAT on their energy bills, but you could cover this cost by switching utilities.
VAT on domestic energy is charged at a rate of 5%, which is the rate you will pay if you work from home. If you work remotely and have low energy consumption, you can benefit from the lower rates offered by a commercial energy rate, along with the 5% VAT rate.
To switch to a business energy offer when you work or run your business from home, you’ll need to be able to show that at least 50% of your home’s energy use is for business purposes.
Want to read about Why SMEs should switch energy providers?
How much is VAT on gas for companies?
VAT on gas is also charged at 20%, but there is an opportunity to pay the 5% discount rate. To be eligible for the lowest gas VAT rate for businesses, you must use less than 145kWh of gas per day. For one month, this equates to 4,397kWh of gas, while for one year it equates to 52,764kWh.
To find out whether or not you can access the reduced rate of VAT on gas, check your recent commercial gas bill and compare your consumption rates with those mentioned. As with business electricity VAT, make sure you check your bill and make sure you’re not being charged the full rate. If so, contact your provider or Contact us we work on behalf of you to provide you hassle-free Service.
What is the business energy VAT threshold?
You should be eligible for a reduced rate of 5% VAT on your gas and electricity bills if your average daily usage does not exceed 145kWh of gas per day (4,397kWh per month) and 33kWh (1000kWh per month) of commercial electricity.
Could your company pay reduced VAT on energy bills?
In addition to the de minimize level of energy consumption, there are other situations where you can pay reduced VAT on gas and electricity bills. These include:
- At least 60% of your business energy is used as home energy.
- Your company is a charity or non-profit organization.
- Commercial premises are also the place of residence of 90% of the
- people who are inside them, such as student residences, places of rehabilitation and residences.
- Places of business that are also your home.
- Holiday accommodation with own kitchen.
- Free educational schools and academies.
- Places of worship, such as convents and monasteries.
Most businesses only partially qualify for the reduced rate and are therefore better suited to a “mixed-use” arrangement. In a nutshell, this allows your business to pay a lower rate on the parts of your business that qualify, while the rest pay 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 cannot claim a VAT refund on gas and electricity bills. Although it is a business-to-business purchase, it is not part of the government’s list of VAT exemptions. That’s why it’s important to turn to energy experts like USwitch For Business to ensure you access available reductions.
It’s also worth knowing that you don’t pay VAT on business fees, council tax, wages and a host of other expenses that are outside the scope of VAT.
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