Understanding Business Energy VAT

The VAT equation: How to Solve it

VAT is the abbreviation of Value Added Tax, and it is a taxed levied by the government.

VAT is a ‘consumption tax’ that is added onto a product after a value has been added both during production and after. It is the cost of the actual product minus the cost of materials used to produce the product. That’s the equation!

Your business, as standard, will include 20% VAT for all of the services and goods you offer, and you will need to pay this VAT to HM Revenue and Customs every 3 months. All businesses that have an annual turnover of £82,000 or more will have to pay VAT – it is illegal not to do so.

Types of VAT

Standard Rate
This applies to the majority of goods and services. This will be the VAT you incur unless your services fall under the zero-rated category.
Reduced Rate
Whether you are charged at a reduced rate or not is dependent on the product you are providing. For example, mobility aids and children’s car seats are charged at 5%.
Zero Rate
The rate of VAT you will charge your customers is 0%. Although the goods are still classed as ‘Taxable’ and you must declare them on your VAT return. Examples of 0% VAT goods are: newspapers and books, motorcycle helmets, and children’s clothes.
The Charge for Electricity and Gas
Your supplier will add on the VAT in your energy bills. As previously stated, this should be 20% although for some businesses, discounts could be offered.
'Mixed Use' Reduction: Do you Qualify?
If the premises you use for business is also used for domestic purposes then you should be eligible to pay the reduced 5% VAT rate. This will apply to you if 60% of the energy consumed by your business is used for domestic reasons. If the 60% swings the other way you may only be eligible for the reduced rate on the remaining 40%, the rest would still count as business energy and would have to be charged at a 20% rate.
The Climate Change Levy
The climate change levy is the tax placed onto the energy that UK businesses receive.

It was introduced on the 1 st of April 2011 to help increase energy efficiency and lower our carbon emissions. Businesses that qualify for a reduced VAT rate also tend to be exempt from incurring the CCL charges. A business would be exempt from CCL if they are dabbling in energy efficient practices.

We would love to hear from you. If you want to save money, time and hassle on your utilities, get in touch and have a chat with one of our energy experts.

You can call us on 020 7701 5189 or email us at hello@swiftswitch.co.uk