Generally speaking, electricity used for commercial purposes is subject to VAT at 20%. However, the actual rate you pay depends on:
how much electricity you use
what you use it for
if you are a registered charity
When the lower VAT rate applies
If, on average, you use less than 33 units of electricity a day (around 3,000 units a quarter) you will pay 5% VAT. This rule applies whether you use electricity for commercial or domestic purposes. It also applies whether your bill is based on an actual meter reading or an estimated reading.
If you use electricity for domestic purposes, you are entitled to pay VAT at 5%. For more information contact HM Revenue and Customs and ask for Notice 701/19. Domestic use includes:
a house, flat or self-contained dwelling
certain types of residential accommodation such as a children’s home, hospice or care home
a caravan or houseboat
self-catering holiday accommodation
The following are generally not allowed to claim the lower rate VAT:
• hotels, guesthouses, B&B’s and similar establishments
• prisons and similar institutions
To claim the lower rate VAT please complete and return the VAT declaration form.
Combined commercial and domestic use (including farms)
Customers can apply to pay 5% VAT for the domestic portion of their bill. Since the meter can’t show this separately the customer must declare, as a percentage, how much electricity is for domestic use.
You must be able to show HM Revenue and Customs how you worked out this figure. If domestic use is 60% or more, VAT will be applied to the whole bill at 5%. To claim the lower rate VAT please complete and return the VAT declaration form.
Charities are generally not entitled to claim VAT at 5% unless the electricity is used for one of the domestic purposes listed. However, they may claim VAT at 5% for electricity used for providing charitable non-business activities such as free day care for people with disabilities. For more information contact HM Revenue and Customs and ask for Notice 701/1. To claim the lower rate VAT you must complete and return this VAT declaration form.
Climate Change Levy (CCL)
CCL applies to electricity which VAT at is charged at 20%. Certain businesses may claim exemption from CCL. For more information contact HM Revenue and Customs and ask for a PP 11 form.
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