VAT on electric and gas

I run a small shop. I have recently being reviewing my bills; looking for any possible savings. I noticed that sometimes my gas bills have VAT charged on them at 5% and other times the standard rate. Why does it fluctuate?

1st April 2011

VAT on domestic use is normally charged at the reduced rate of 5% and for business use at the standard rate of 20%.

However, some businesses meet HMRC’s ‘de minimis’ rules and therefore, can have the reduce rate charged on their electric and gas supplies.

The low usage thresholds for common supplies are as follows:

  • Electric - an average of 33 kWh per day during the bill period
  • Gas - an average of 145 kWh per day during the bill period
  • Deliveries of no more than 2,300 litres of fuel oil, gas oil or kerosene

If your business meets the above requirements, it will also qualify for exemption from being charged the Climate Change Levy (CCL).

Your supplier should charge you the correct rate of VAT and CCL. Don’t forget, if your business is not VAT registered, the VAT element is a cost to your business and therefore affects your profits and cashflow. Therefore, it is important that you ensure these are correctly calculated.

The guidance on this area is quite extensive and therefore, we would suggest you seek professional advice from your local TaxAssist Accountant if you have a query with your billing.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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