A large number of non-profits, charities and churches in the UK have very high energy bills and this can result in payment struggles. For business energy, the normal 20% VAT rate applies but to help non-profits who qualify for VAT relief, only 5% VAT needs to be paid. That’s a substantial saving of 15%.
However, suppliers do not automatically apply this VAT relief so it is important you know the requirements and apply. You can also claim back VAT if you have been overpaying.
The Requirements You Must Meet:
In order to qualify for VAT relief (as per the Gov.UK website), the energy must be for:
- Residential accommodation, for example an elderly care home or children’s home)
- Charitable non-business activities (e.g. free daycare for the disabled)
- Small scale use (use up to 1,000 kWh per month or a delivery of 2,300 litres of gas oil)
If the fuel or power usage is less than 60% for the qualifying requirement then you will be able to pay a reduced rate for the qualifying part and the standard 20% rate for the rest of the usage.
How Can You Claim VAT Relief on Energy Rates?
Not all business energy providers are aware of, or set up to deal with, the charity VAT relief. Therefore, it is important – when you are deciding on a provider – to confirm whether or not they are able to charge you the lowered VAT rates.
Once you know that the energy provider can charge the lower VAT rate, you will need to prove that you run a non-profit and prove that you meet the requirements mentioned above. In order to do this, you must provide:
- Charity Commission registration number or letter of recognition from HM Revenue and Customs.
- A certificate or written declaration confirming you are eligible for VAT relief
What to Do if You’ve Overpaid
Suppliers do not automatically apply these discounts so if you think you have been paying the wrong VAT rate for energy, you should contact your supplier directly and request a refund. Also note that, as a charity engaged in non-commercial activities, you are also exempt from paying the Climate Change Levy (CCL) charges which are 5% so make sure you are not being charged this.
Frequently Asked Questions:
Can business claim back VAT?
VAT for business energy is 20% unless you are a charity then it is 5%. If you think you have been paying the wrong VAT rate, you can request a rebate from the supplier for up to four years’ worth of back payments. Generally, businesses are able to reclaim the VAT paid on goods and services for use within the business however this does not apply to business energy VAT which cannot be reclaimed (unless in a situation of overpayment).
Can a company reclaim VAT on employee expenses?
You can reclaim VAT on employee travel expenses for business trips, including accommodation and meals. You cannot reclaim on entertainment costs and you cannot reclaim if you pay your employees a flat rate for expenses.
How far back can I reclaim VAT?
If you feel you have been paying the wrong VAT rate for your energy you can claim up to four years of back payment. The rebate from your supplier should be the difference between 5% and the rate you were charged at the time of the bills.
For the VAT paid on business purchases: purchases made before registration you can claim VAT up to 4 years back for goods you still have and up to 6 months back for services.
What can I claim VAT back on?
A business can reclaim the VAT that has been paid on goods and services purchased for business use. In a purchase that is also for private or personal use only the business proportion of the VAT can be reclaimed – for example if 50% of your mobile phone calls are business calls then you can reclaim 50% of the VAT.
How does claiming VAT back work?
To reclaim overpayment on business energy VAT, you can get a VAT Declaration Form from your energy supplier and claim the overpayments from your suppliers or HMRC.
In order to claim VAT back for your business, you need to keep records to support your claim, have valid VAT invoices and show how the business proportion of the purchase was calculated. You can claim by submitting your VAT Return to HM Revenue and Customs.
Can I claim VAT back if I am not VAT registered?
If your business is not VAT registered then you do not have to charge VAT and you can’t claim VAT back. If your business’s taxable turnover is higher than £85,000 you must be registered for VAT. If you have a lower annual turnover then you can voluntarily register for VAT. If your business pays VAT, you can claim back VAT paid on goods and services.
The VAT paid on business energy cannot be claimed back unless you are eligible for lower energy VAT rates. In which case, you can use a VAT Declaration Form (available from your energy supplier) to claim overpayments either from HMRC or your energy supplier.