Businesses normally have to pay the normal rate of VAT (20%) on business energy. However, charities can benefit from an additional 15% VAT savings compared to businesses, if they qualify for fuel and power VAT relief.
Thus paying only 5% vs 20%.
What are the criteria for cheap energy?
According, GOV.UK to qualify for 5% VAT, your charity must use the energy for:
- Charitable non-business activities (for example, free daycare for the disabled)
- Residential accommodation (for example, a children’s home or care home for the elderly)
- Small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil)
If less than 60% of the fuel and power is for something that qualifies, you’ll pay the reduced rate of VAT on the qualifying part and the standard rate (20%) on the rest. Note this does not include vehicle fuels.
How to claim VAT relief on electricity and gas?
It would be nice if all business energy suppliers were set-up to handle charities and non-profits, but the truth is many smaller suppliers may not be aware of the VAT relief available to charities.
So the first thing you should ask when getting electricity and gas quotes is if they can easily charge you the lower rate of VAT on your energy bills.
Assuming they can, they will then need some proof that you run a charity, church and/or non-profit and that your activities fall within one of the categories above. Again according to Gov.UK
To get VAT relief you must give your supplier:
- Evidence that you’re a charity (Charity Commission registration number or Letter of recognition from HM Revenue and Customs (HMRC)).
- A written declaration or ‘certificate’ confirming that you’re eligible for the relief.
Climate Change Levy (CCL) Exemption
As if saving 15% on VAT wasn’t good enough, the government also exempts charities engaged in non-commercial activities from Climate Change Levy (CCL) charges. As of 1 April, 2017 these charges were:
- Electricity: 0.568 p/KWh (increasing to 0.847 p/KWh on 1 April 2019)
- Natural Gas: 0.198 p/KWh (increasing to 0.339 p/KWh on 1 April 2019)
- LPG: 1.272 p/kg (increasing to 2.175 p/kg on 1 April 2019)
What can you do if you’re think you’ve overpaid?
According to an HMRC statement published on the ITV website:
If a charity believes it has been charged the wrong rate of VAT on a supply of fuel and power, or that it has been charged CCL, it should contact its supplier and request a refund.
Still not sure if you might be eligible?
If you own, run or work for any of the following you should at least ask your supplier about VAT relief and CCL exemption:
- Other Non-profit
- Village hall
- Sports Club
- Community centre
- Free school or academy
- Care home
- Student accommodation
- Monastery / Nunnery
- Self-catering holiday accommodation
And if you’re looking for a new supplier, you can use the form at the top of this page to get free energy quotes today.