VAT on gas and electricity for business

Which VAT rate applies

The standard 20% rate normally applies to fuel and power supplied for business use. The reduced rate applies only where the supply meets the rules for small quantities or qualifying use; it is not a general small-business discount and it does not depend simply on the customer being VAT registered.

There is a time-limited exception for qualifying electricity. Supplies in Great Britain that would otherwise receive the domestic reduced rate are zero-rated from 1 October 2026 to 31 March 2027. Qualifying electricity in Northern Ireland remains at 5%, and qualifying gas and other domestic fuel remain at 5% throughout the UK. Use the tax point and place of supply shown by the current HMRC rules when checking an invoice that spans a rate change.

• 20%: the normal rate for business use.
• 5%: qualifying small, domestic, residential or charity non-business supplies, subject to the temporary electricity rule.
• 0%: qualifying electricity supplied in Great Britain from 1 October 2026 to 31 March 2027.
• The customer does not choose a rate; the facts of the supply determine it.

The de minimis limits for small supplies

HMRC says a supply at or below the de minimis level must be treated as domestic use even when it is supplied to a business. For electricity, the limit is an average of no more than 33 kWh a day or 1,000 kWh a month. For piped gas, it is an average of no more than 145 kWh a day or 4,397 kWh a month.

The supplier normally applies this treatment from the billed quantity without asking for a use certificate. Check the actual billing period: a quarterly invoice should not be tested as though all consumption occurred in one month. Where more than one meter or premises is involved, ask the supplier to explain which supply it tested and how it converted the period to a daily or monthly average.

• Electricity: no more than 33 kWh a day or 1,000 kWh a month on average.
• Piped gas: no more than 145 kWh a day or 4,397 kWh a month on average.
• Small-quantity treatment is based on the amount supplied, not turnover or employee count.
• Separate limits apply to LPG, oil and solid fuel; use Notice 701/19 for those supplies.

Domestic, residential and charity non-business use

Energy can qualify when it is used for a domestic purpose, including defined residential accommodation and certain communal arrangements. HMRC's examples include homes, caravans, houseboats, hospices, monasteries and nunneries, and residential accommodation for children, students, older people and people in need of care. A business can buy the supply without making every use business use; the end use is what matters.

Fuel and power used by a charity for non-business activities can also qualify. The charity must distinguish non-business activity from any business activity such as taxable trading or supplies made for consideration. Charitable status alone does not put the whole account on the lower rate.

Mixed use and the 60% rule

One meter can serve both qualifying and ordinary business use. If 60% or more of the fuel or power is for qualifying use, the whole supply is treated at the qualifying rate. If the qualifying proportion is below 60%, the supplier should apportion the bill: the qualifying portion receives the qualifying rate and the remainder is standard-rated.

Use a reasonable and supportable method to calculate the split. Sub-meter data is strong evidence, but floor area, occupancy, equipment ratings, operating hours or an engineering calculation may be appropriate where direct measurement is unavailable. Keep the method consistent and revisit it when the building, tenants or operating pattern changes.

• 60% or more qualifying use: the whole supply qualifies.
• Less than 60% qualifying use: split the supply between qualifying and standard-rated use.
• Do not apply the rule separately to selected invoice lines while ignoring the underlying energy-use split.
• Keep the calculation and evidence with the submitted certificate.

What the VAT rate covers on an energy bill

Standing charges and other charges that are inseparable from the supply normally follow the VAT liability of the gas or electricity. Climate Change Levy is included in the value on which VAT is calculated when CCL is due, so an invoice can legitimately show VAT calculated on the energy charges plus CCL.

The treatment of a separately supplied service can differ, so identify what the charge is for rather than assuming every line follows the energy rate. HMRC also states that electricity supplied through public electric-vehicle charging points is standard-rated; the domestic reduced-rate rules do not apply merely because the vehicle is charged away from business premises.

Can a business reclaim the VAT

A VAT-registered business can normally reclaim input VAT on the business-use proportion of its gas and electricity, provided it holds a valid VAT invoice and the normal recovery rules are met. Paying 20% does not necessarily mean that 20% is an irrecoverable cost, but cash flow and partial recovery still matter.

Private or non-business use must be excluded or otherwise dealt with under the relevant VAT rules. Partial exemption, exempt activities and the Flat Rate Scheme can restrict or change recovery. A business that is not VAT registered cannot reclaim input VAT through a VAT return. Obtain accounting advice where the energy supports both taxable and exempt activities.

How to correct the wrong VAT rate

Start with the supplier, not a manual adjustment to the invoice. Identify the account, meter, premises, invoice periods and the rate charged. For de minimis use, show the billed quantities and period. For domestic or charity non-business use, submit the supplier's certificate or an equivalent declaration with the qualifying percentage and supporting calculation.

Ask the supplier to confirm the effective date, whether it will issue credit notes or replacement invoices, and how it will handle any related CCL correction. A certificate supports the treatment but does not remove the need for accurate evidence. Keep the original bills, corrected bills, certificate, calculation and supplier response with the VAT records.

• Check the consumption and dates before challenging the rate.
• Use a separate calculation for each premises or materially different supply.
• Tell the supplier when qualifying use changes or the account moves to a new legal entity.
• Do not reclaim a different amount from the VAT shown on a valid invoice without professional advice and the correct documentation.