Making sure your business is not overpaying VAT and CCL
The only thing certain in life are death and taxes. We all know this saying, and whilst we can’t help you avoid the death part, we can help you avoid some of the taxes associated with your gas and electricity bills.
VAT is applied by default to gas and electricity invoices at 20%. However if your usage falls under one of the below categories you only need to pay 5% VAT and no CCL. Note, 5% VAT is automatically applied for “de minimis” consumption. The other qualifying reasons require paperwork, and Direct Power can prepare this paperwork for your approval, signature, and handle the submission to the supplier and HMRC. Get in touch today for assistance, we don’t want anyone paying VAT or CCL when they don’t have to!
Qualifying Usage for 5% VAT
De Minimis consumption
If your average daily consumption of energy is lower than the de minimis threshold then you are charged 5% VAT on your gas and electricity bills. Your average daily usage must be no more than:
• 33kWh (1000 kWh per month) of business electricity.
• 5 therms or 145 kWh (150 therms/4397 kWh per month) of business gas.
5% VAT is automatically applied when your usage falls below these thresholds, no paperwork is necessary. You may even see changes from one bill to the next if usage fluctuates above and below these thresholds.
Gas and Electricity for genuine Domestic Usage qualifies for 5% VAT. Domestic properties come in all shapes and sizes and they all qualify for 5% VAT, including:
• Land Lords Supplies covering the corridors, lifts, hallways and stairways in a residential unit
• armed forces residential accommodation
• children’s homes
• homes providing care for the elderly or disabled, people with a past or present dependence on alcohol or drugs or people with a past or present mental disorder
• houses, flats or other dwellings
• institutions that are the sole or main residence of at least 90% of their residents
• monasteries, nunneries and similar religious communities
• school and university residential accommodation for students or pupils
• self-catering holiday accommodation
• buildings such as garages used with houses
• subsidiary buildings situated a short distance away, such as a garage in a block located away from a house
• corridors, lifts, hallways and stairways in a residential unit, commonly referred to as a Land Lords Supply
The following do NOT qualify for 5% VAT:
• prisons or similar establishments
• hotels, inns or similar establishments
When a charity doesn’t make a charge and activities are generally non-business related then usage qualifies for 5% VAT.
It is common for the gas and electricity from a single meter be used for both qualifying and non-qualifying usage. A common example would be a building which contains a pub and a publican’s flat, or a charity that operates a charity shop and a soup kitchen from the same building. In scenarios of mixed usage the customer must inform the supplier of the consumption split between qualifying and non-qualifying usage so the bill is apportioned correctly with 5% VAT for the qualifying usage and 20% for the non-qualifying usage. Note, if more than 60% of all usage qualifies for reduced VAT then the supplier will treat the whole supply as qualifying and 5% VAT will apply to all usage.
The below example is for a Pub with a flat above. The Pub and flat each consume 50% of the energy usage:
Business Use (Pub): 50%
Domestic (Flat): 50%
% at 20% VAT: 50%
% at 5% VAT: 50%
The below example is for a Charity the operates a shop and soup kitchen, since less than 60% of usage is qualifying, 5% VAT is only applied to the proportion of qualifying usage:
Charity Shop: 55%
Soup Kitchen: 45%
% at 20% VAT: 55%
% at 5% VAT: 45%
The below example is for a Charity that operates a shop and soup kitchen, in this scenario, the soup kitchen accounts for more than 60% of overall usage, so all usage is charged at 5% VAT:
Charity Shop: 30%
Soup Kitchen: 70%
% at 20% VAT: 0%
% at 5% VAT: 100%
It is worthwhile remembering that when usage qualifies for 5% VAT, it also qualifies for CCL relief, so savings soon add up!
Get in touch with Direct Power today. We help countless customers from all sectors We can help you ensure your energy bills are issued with the correct level of VAT and help you secure credits on historically overcharged VAT.