Written by Key takeaways
20%
Standard rate
Applied to most business gas + electricity bills
5%
Reduced rate
Charities, low-usage sites, residential premises
33 kWh
Electricity cap
Per day to qualify as "low usage" (1,000 kWh/month)
4 yrs
Backdating
Maximum window to claim a VAT refund
VAT on business energy: how the rates work
VAT (Value Added Tax) is a government levy applied to goods and services bought and sold in the UK. The default standard rate has been 20% since January 2011, but a handful of categories pay a reduced rate of 5%, including all domestic energy and a subset of business energy.
When the rate hits a business bill, it is added after the unit rate and the standing charge, on top of the Climate Change Levy. On a £10,000-a-year business electricity bill, the difference between 5% and 20% is £1,500. Multiply that across the four-year backdating window and a misclassified site can be owed £6,000 in refunds. Reading your bill correctly starts with knowing your meter type and how usage is recorded.
VAT is not reclaimable on business energy
Unlike most business inputs, the 20% VAT on gas and electricity does not flow through the VAT return. The only way to reduce the burden is to qualify for the 5% reduced rate at the supplier level: there is no path to recovery via HMRC afterwards.
Six categories
All VAT rates on UK energy at a glance
The reduced rate is not just for homes. Five distinct business categories qualify for the 5% rate, and each has its own supporting evidence requirement.
Who pays 5%
Six categories that qualify for the reduced rate
HMRC notice 701/19 sets out the eight reduced-rate categories. The six below cover the vast majority of small-business claims. The remaining two (caravans/houseboats used as primary residences, certain religious premises) are rare and need bespoke advice.
Charities & non-profits
Registered charities and CICs pay 5% on the share of energy used for non-business activities (community use, free services, religious worship).
Residential dwellings
Care homes, children's homes, hospices, student accommodation, monasteries, nunneries, and self-catering holiday lets all qualify.
Low-usage businesses
Sites consuming under 33 kWh/day of electricity or 145 kWh/day of gas. Typical for very small shops, lock-up garages and unmanned kiosks.
Working from home
Where at least 60% of the supply is for domestic use, the whole bill is charged at 5%. Below 60%, the supplier apportions it, so only the domestic share gets the reduced rate.
Schools, universities & care homes
Specifically residential settings where occupants live as their primary residence (90%+ occupancy threshold).
Hospices
Standalone hospices, including the staff and patient sections, qualify under the residential-care exemption.
"Low usage": the de minimis thresholds
The most commonly missed reduced-rate category. Any site that stays under HMRC's de minimis thresholds across an average month automatically qualifies for 5% VAT and is exempt from the Climate Change Levy. The supplier checks against your meter readings: you do not have to file anything. Gas thresholds are set in kWh, so if your bill shows cubic metres or therms, use our gas units to kWh converter to check where you sit.
Electricity
33 kWh / day
Equivalent to 1,000 kWh per month. Typical of small offices, unmanned kiosks, lock-up units.
Gas
145 kWh / day
Equivalent to 4,397 kWh per month. Typical of small heating-only premises with no commercial cooking.
How to claim
Five steps to switch from 20% to 5% (and back-claim)
The supplier handles the paperwork end-to-end once you submit the declaration. Allow six to eight weeks for back-dated refunds to land on your account.
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1
Confirm you qualify
Tick at least one of the HMRC categories: charity, residential premises, low usage, or 60%+ domestic use. If you only partly qualify (e.g. a charity using the site partly for trading), the reduced rate applies pro rata to the qualifying share.
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2
Request the VAT declaration form
Each supplier has its own form (British Gas Business, E.ON, EDF, Scottish Power, Opus, Yu Energy etc.). Download it from the supplier's website or ask the account team to email it.
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3
Complete one form per supplier
If you have separate gas and electricity suppliers, you need to file separately with each. If you switched supplier in the last four years, fill the form with the previous supplier too to claim the back-dated refund.
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4
Provide supporting evidence
Charities supply their registration number and a copy of the most recent annual return. Residential premises supply a planning-use class. Low-usage sites are checked against the supplier's consumption data.
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5
Wait for the rate change
Once accepted, the supplier applies the 5% rate from the next bill. Back-dated refunds are paid as a credit on the account, usually within 6-8 weeks of receipt.
How the Climate Change Levy interacts with VAT
The Climate Change Levy (CCL) is a separate per-kWh tax on business gas and electricity, set at 0.847 p/kWh on electricity and 0.732 p/kWh on gas for 2026-27. It is added before VAT, so a business at the 20% standard rate effectively pays VAT on the levy itself.
The good news: qualifying for the 5% reduced VAT rate automatically removes the CCL on the same meter. The supplier processes both reliefs from a single declaration. Sites that pay the standard rate but want to reduce the CCL can sign a Climate Change Agreement (CCA) through their trade body in exchange for energy-efficiency targets, cutting the levy by up to 92% on electricity.
Check your bill
A reduced-rate bill should show 5% VAT and a zero or blank Climate Change Levy line. If you see both 20% VAT and a non-zero CCL line, your declaration is either missing, expired, or has not been processed yet. Call the supplier with the date you submitted it.
Pay the right VAT rate and the cheapest unit rate.
Compare business suppliers that include VAT, CCL and standing charges in a single delivered p/kWh quote. Selectra's brokers also walk you through the 5% declaration if you qualify.
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Frequently asked questions
VAT on business energy: common questions
HMRC treats domestic energy as a necessity (taxed at the reduced 5% rate set in 1997) and business energy as a normal commercial input (taxed at the 20% standard rate set in 2011). The two rates only overlap when a business uses very little energy or qualifies as a residential / charitable use under HMRC notice 701/19.
No. Energy is a "non-recoverable" input tax for most VAT-registered businesses, meaning the 20% you pay does not feed into your VAT return. The only way to reduce it is to qualify for the 5% reduced rate at the supplier: there is no rebate route through HMRC after the fact.
Under HMRC rules, a site qualifies as a low-usage business if its average daily consumption falls below the de minimis thresholds: 33 kWh of electricity per day (1,000 kWh per calendar month) or 145 kWh of gas per day (4,397 kWh per month). The supplier checks against your half-hourly or monthly readings; you do not have to declare anything if you have a smart meter.
No. Almost every B2B quote excludes VAT and the Climate Change Levy (CCL) because some sites qualify for the reduced rate or a CCL exemption. To compare like-for-like, ask the broker for the all-in delivered cost in p/kWh including both VAT and CCL.
If you qualify for the 5% reduced VAT rate, you are automatically exempt from the CCL on the same meter. The supplier applies both reliefs at once. Businesses that pay 20% VAT can still seek partial CCL relief by signing a Climate Change Agreement (CCA) with their trade association in exchange for energy-efficiency commitments.
Four years. If you have been over-charged 20% on a meter that should have been on 5% since 2022, the supplier must refund the difference for every bill paid in the last four years, typically £400-£2,000 for a small site. Submit the declaration form covering the full back-dated period and attach all relevant invoices.
When a landlord or managing agent recharges energy to a tenant, the VAT rate follows how the supply is used by the occupier, not by the landlord. A residential or low-usage occupier should still receive the 5% rate, but recharged or sub-metered bills are often passed on at the standard 20% by default. Ask whether the recharge is sub-metered (actual usage) or allocated (a share of the whole building) and, if you qualify, submit a VAT declaration so the reduced rate is applied to your portion.