Last updated: 7 October 2026
Most UK businesses pay 20% VAT on electricity and gas. Some pay the reduced rate of 5%: sites with low usage, charities using energy for non-business work, and residential premises such as care homes. From 1 October 2026 to 31 March 2027, electricity that qualifies for the reduced rate is charged at 0% in England, Scotland and Wales.
The lower rate is not always applied for you. This guide explains which rate applies to your business, how to check your bill, and how to claim back VAT you have overpaid.
VAT on business energy at a glance
| Supply | Standard rate | Rate for qualifying use |
|---|---|---|
| Business electricity in England, Scotland and Wales | 20% | 0% from 1 October 2026 to 31 March 2027, then 5% |
| Business electricity in Northern Ireland | 20% | 5% |
| Business gas | 20% | 5% |
| Heating oil, LPG and solid fuel | 20% | 5% |
| Business water | 20% for industrial customers | 0% for all other businesses |
Source: HMRC VAT Notice 701/19, Fuel and power, updated 8 September 2026.
How much is VAT on business electricity?
The VAT rate on business electricity is 20% for most businesses. Your supplier adds it to the whole bill, including the standing charge and the Climate Change Levy. If your supply counts as “qualifying use”, the rate falls to 5%, or to 0% in Great Britain until 31 March 2027.
HMRC treats four types of supply as qualifying use:
- Low usage: no more than 33 kWh a day, or 1,000 kWh a month, at one premises.
- Domestic or residential use: homes, care homes, student halls and similar accommodation.
- Charity non-business use: energy a charity uses for activities it does not charge for.
- Mixed use: premises where 60% or more of the energy is for one of the uses above.
VAT is a tax on top of your contract price, so the rate you negotiate still matters. You can compare business electricity prices with us at any time.
What is the VAT rate on business gas?
The VAT rate on business gas is 20%, with a reduced rate of 5% for qualifying use. Gas has no zero rate. The October 2026 change covers electricity only, so qualifying gas stays at 5%.
The low-usage limit for gas is 145 kWh a day, or 4,397 kWh a month, at one premises. If you want to check your contract as well as your tax, see our business gas page.
What changed on 1 October 2026?
On 21 July 2026 the government announced a temporary zero rate of VAT on qualifying electricity. It runs from 1 October 2026 to 31 March 2027 in England, Scotland and Wales. HMRC confirms there is no change to which supplies qualify. Anything that was charged 5% is now charged 0%.
| Your position | What happens |
|---|---|
| Already on 5% for electricity in Great Britain | Your supplier moves you to 0% automatically |
| Charged 20% but your supply qualifies | Nothing changes until you act, and you now overpay by more |
| Charged 20% and your supply does not qualify | No change |
| Based in Northern Ireland | Qualifying electricity stays at 5% |
Check your October and November bills to confirm the right rate has been applied. The detail is in HMRC’s policy paper, Temporary zero rate of VAT in Great Britain for domestic electricity.
Who qualifies for the reduced rate of VAT on energy?
A business qualifies if its supply is low usage, residential or charity non-business use, or if at least 60% of the energy goes to one of those uses. Being a small company or a registered charity is not enough on its own. The test is how much energy the premises uses and what it is used for.
Low usage: the de minimis limits
HMRC calls small supplies “de minimis”. They are always treated as domestic, even when the customer is a business.
| Fuel | Limit at one premises | Roughly per year |
|---|---|---|
| Electricity | 33 kWh a day, or 1,000 kWh a month | 12,000 kWh |
| Piped gas | 145 kWh a day, or 4,397 kWh a month | 52,800 kWh |
Three points are often missed:
- The limit applies to each premises separately. A business with several small sites can qualify at every one of them.
- It applies whether the bill is based on a meter reading or an estimate. An over-estimated bill can push you onto 20% by mistake.
- You do not need a certificate. Your supplier should apply the lower rate from your usage alone.
Suppliers usually test each bill, so a seasonal business can move between rates during the year.
Domestic and residential use
Energy supplied to a dwelling or to residential accommodation qualifies. HMRC’s list includes care homes, children’s homes, hospices, student and school accommodation, self-catering holiday lets, caravans and houseboats. Hotels, inns, hospitals and prisons do not qualify.
Charity non-business use
A charity pays the reduced rate on energy used for non-business activities, which generally means services it does not charge for. Energy used for business activities is standard-rated. A charity shop or a hall hired out for a fee pays 20%, unless the site is under the low-usage limit.
Mixed use and the 60% rule
If 60% or more of the energy is for qualifying use, the whole supply is charged at the reduced rate. If it is less than 60%, the bill is split. The qualifying share is charged at the reduced rate and the rest at 20%.
A pub with a manager’s flat upstairs is a common example. If the flat uses 30% of the electricity, 30% of the bill is charged at 0% and 70% at 20%.
How do I check which VAT rate I am paying?
Your latest bill shows the VAT rate and the amount charged, usually just above the total. It takes five minutes to check it against your usage.
- Find the VAT line and note the rate: 20%, 5% or 0%.
- Find the kWh used and the number of days the bill covers.
- Divide the kWh by the days to get your daily average.
- Compare it with 33 kWh a day for electricity or 145 kWh a day for gas.
- Look for a Climate Change Levy line. A site under the limit should not be charged it.
- Repeat for every meter and every site, because each premises is tested separately.
If you are not sure where these figures sit, our guide to what is on a utility bill shows each line.
How much difference does the VAT rate make to a bill?
On a small business electricity bill, the gap between 20% and 0% is about £59 a month. The example below is one 30-day bill for 900 kWh, at 26p per kWh with a 60p daily standing charge. The prices are illustrative.
| Bill line | Standard rate | Reduced rate | Zero rate |
|---|---|---|---|
| Electricity used | £234.00 | £234.00 | £234.00 |
| Standing charge | £18.00 | £18.00 | £18.00 |
| Climate Change Levy | £7.21 | £0.00 | £0.00 |
| VAT | £51.84 at 20% | £12.60 at 5% | £0.00 |
| Total | £311.05 | £264.60 | £252.00 |
A site wrongly left on 20% would overpay about £354 across the six months of the zero rate. Notice that VAT is charged on the levy as well as the energy.
How does VAT link to the Climate Change Levy?
The Climate Change Levy (CCL) is a separate tax on business energy, and it follows the VAT rules. A supply that qualifies for the reduced rate of VAT is also excluded from the main rate of CCL. One mistake on your account can mean you are overcharged twice.
| CCL main rate | Electricity | Gas |
|---|---|---|
| From 1 April 2026 | 0.801p per kWh | 0.801p per kWh |
| From 1 April 2027 | 0.827p per kWh | 0.827p per kWh |
Source: HMRC Climate Change Levy rates.
This matters most to VAT-registered businesses. You can reclaim VAT on your return, but you cannot reclaim CCL. For the full list of charges on a bill, read what affects your business electricity rate.
Can my business reclaim VAT on energy bills?
Yes, if you are VAT-registered. VAT on gas and electricity used for the business is input tax, which you reclaim on your VAT return under the normal rules. Keep your supplier invoices as evidence.
If you are not VAT-registered, the VAT on your energy is a real cost. The same is true for charities and for businesses that make exempt supplies and can only reclaim part of their VAT. For these organisations, moving from 20% to the reduced rate is a direct saving.
How do I apply for the reduced rate of VAT?
Low-usage sites do not need to apply. For residential, charity or mixed use, you give your supplier a VAT declaration, also called a VAT certificate. Most suppliers have their own form.
HMRC says the certificate should show:
- your supplier’s name and address
- your name, address and VAT registration number if you have one
- the address of the premises supplied
- the exact percentage of energy put to qualifying use
- a signed and dated declaration from a responsible person, with their name and position
You need a separate certificate for each premises and each supply. Send supporting calculations if your supplier asks for them, and keep a copy. HMRC can charge a penalty for an incorrect certificate.
A certificate does not follow you to a new supplier. Add it to your checklist when you switch business energy supplier or agree a business energy contract renewal.
Can I claim back overpaid VAT on business energy?
Yes. If you were charged 20% on a supply that qualified for the reduced rate, your supplier can correct the error for up to four years. Contact each supplier you used in that period, and send a certificate where one is needed.
Ask for the Climate Change Levy to be corrected at the same time. Our free UMW Health Check validates your bills, checks that discounts are applied and completes supplier paperwork for you.
Is there VAT on business water bills?
Most businesses pay no VAT on water. Water supply is zero-rated unless your main business activity is industrial. HMRC defines that as divisions 1 to 5 of the 1980 Standard Industrial Classification:
- Energy and water supply
- Mineral extraction, and the manufacture of metals, mineral products and chemicals
- Metal goods, engineering and vehicles
- Other manufacturing
- Construction
Businesses in these divisions pay 20% VAT on water supply charges. Sewerage and trade effluent charges are zero-rated for every business. If your water retailer holds the wrong industry code, you can be charged VAT by mistake.
The rule is set out in HMRC’s water and sewerage manual. To review your charges, see our business water page.
Is there VAT on heating oil and LPG for business?
Yes, at 20% for most business deliveries, with a 5% rate for small quantities. The limits are set per delivery, not per month.
- Heating oil, gas oil and kerosene: a delivery of 2,300 litres or less is charged at 5%.
- LPG in cylinders: cylinders under 50 kg are charged at 5%, unless bought for resale.
- Bulk LPG: charged at 5% where the site cannot store more than two tonnes.
Fuel sold for road use is always charged at 20%.
Do you pay VAT on business rates?
No. Business rates are a local property tax, not a supply of goods or services, so your council bill carries no VAT. If your landlord pays the rates and charges them back inside your rent, that charge follows the VAT treatment of the rent.
Do business energy quotes include VAT?
No. Business electricity and gas rates are normally quoted before VAT and before the Climate Change Levy. When you compare offers, make sure each one is shown on the same basis. Our business energy comparison guide lists the 2026 benchmark rates.
What if my usage is just above the limit?
A site slightly over 1,000 kWh a month pays 20% VAT and the levy on every unit. Bringing usage under the limit removes both. Start with the quick wins in our guide on how to reduce business energy consumption.
Get your VAT rate and energy contract checked
Utility Market Watch compares business energy across a panel covering more than 90% of the UK market by customer numbers. We can check your VAT rate, levy and contract in one review.
Get a business energy quote, call 03333 601010, or contact the team.
VAT on business energy: FAQs
How much is VAT on business electricity?
VAT on business electricity is 20% for most UK businesses. Supplies that qualify for the reduced rate pay 5%. In England, Scotland and Wales, qualifying electricity is charged at 0% from 1 October 2026 to 31 March 2027.
Is there VAT on electricity for every business?
Yes. Every business electricity supply is subject to VAT, but the rate differs. Most pay 20%. Low-usage sites, residential premises and charities using energy for non-business work pay the reduced rate, which is currently 0% in Great Britain and 5% in Northern Ireland.
What is the VAT rate on domestic gas and electricity?
Domestic gas is charged at 5% VAT across the UK. Domestic electricity is charged at 0% in England, Scotland and Wales from 1 October 2026 to 31 March 2027, and at 5% in Northern Ireland. The electricity rate returns to 5% after 31 March 2027.
Does my business get 0% VAT on electricity?
Only if your electricity already qualifies for the reduced rate and you are in England, Scotland or Wales. That means low usage, residential use, charity non-business use, or mixed use of 60% or more. Businesses on the standard rate still pay 20%.
What is the low-usage limit for VAT on business energy?
The limit is 33 kWh a day or 1,000 kWh a month for electricity, and 145 kWh a day or 4,397 kWh a month for gas. It applies to each premises separately. Supplies within the limit are charged at the reduced rate without a certificate.
Is VAT charged on the standing charge?
Yes. HMRC treats the standing charge as part of the supply of gas or electricity. It is charged at the same VAT rate as the energy itself, so it is 20% on a standard-rated supply and the reduced rate on a qualifying supply.
Do charities pay VAT on gas and electricity?
Charities pay the reduced rate on energy used for non-business activities and 20% on energy used for business activities. If at least 60% of the use at a premises is non-business, the whole supply is charged at the reduced rate. The charity must give its supplier a certificate.
How far back can I claim overpaid VAT on energy bills?
You can claim for up to four years. Contact each supplier that charged you the wrong rate and provide a VAT certificate where one is needed. Ask them to correct the Climate Change Levy for the same period.
Do businesses pay VAT on water bills?
Most do not. Water supply is zero-rated unless the customer’s main activity is industrial, such as manufacturing, engineering, mining, energy supply or construction. Those businesses pay 20% on water supply. Sewerage charges are zero-rated for all businesses.
Do you pay VAT on business rates?
No. Business rates are a local property tax and are outside the scope of VAT, so a council rates bill has no VAT on it.
This guide is general information, not tax advice. Check your own position with your accountant or HMRC.