In the UK, the business water supply system works differently to how it does for residential customers. This means that you can choose your business water supplier – but also that you may have to pay value added tax (VAT) on your business water bills.
However, not every UK business is liable for VAT on its water bills. Whether or not you pay VAT is dependent on what kind of business you run.
It is also important to note that business water VAT is only applied to the supply of fresh water. It isn’t charged on your bills for sewerage or waste water services.
Although every business water company is legally obliged to make sure it charges the correct VAT on any business water supplies it provides, it doesn’t hurt to do your own research to ensure that you are paying what you owe.
How do you work out if you have to pay VAT on your business water bill?
Begin by finding your company’s standard industrial classification (SIC) code. This is a five-digit code that indicates what kind of business you run. You need to select one when you set up a company, so your organisation should have one already.
There are over 600 SIC codes in the UK, split down by different industries, like retail, manufacturing, construction, mining and quarrying, and agriculture, forestry and fishing.
However, only businesses that have a code in divisions 1 to 5 of the 1980 edition of the SIC are required to pay VAT on their water bills.
Broadly speaking, this covers around eight categories of organisations: construction, engineering, fuel production, manufacturing, mining, power, quarrying and water.
If your SIC code is not listed in divisions 1 to 5, then your business will be zero-rated for VAT on its water supply, essentially an exemption from paying that tax.
What is the VAT rate on business water bills?
VAT on water bills is charged at the standard rate for the UK, which at the time of writing is 20 per cent. This can be a sizable addition to your water bill, so it is important to make sure you are only paying it if you need to.
Even if you are correctly being charged VAT on your business water bills, you can still take steps to reduce your bills to help lower the amount of tax you are paying.
How much have water bills gone up?
In 2025–26, the average increase in water bills across the UK was in the region of 26 per cent, according to Water UK. However, for 2026–27 there is good news for both businesses and households alike.
Water UK revealed that the average water bill increase will be considerably lower at 5.4 per cent. As a business water customer, you have the opportunity to shop around for your water supply which could help you offset this increase still further.
How can you lower your business water bill VAT?
The simplest way to reduce the amount of VAT you’re paying on your water bill is to reduce the amount you pay for your fresh water supply. This is because the VAT you owe is based on what you pay to your supplier.
There are a couple of ways in which you can reduce your business water bill, and in the process the VAT you pay.
First, you can switch your business water supplier to one that offers more favourable rates. This can help you lower your bills by paying a lower tariff for your water supply.
Second, you can reduce the amount of fresh water your business uses and, in the process, lower what you are being charged. Of course, this is only applicable if your premises has a water meter.
To work out what the best strategy is for your organisation, getting in touch with experts who can carry out a water bill validation exercise is valuable.
Through this process, you can discover how much water you are using, where you can reduce your consumption and also ensure that you are paying the fairest rate for the water you do use. This exercise will also flag up whether you are paying VAT unnecessarily on your water bills.
Can you reclaim business water VAT?
If your company is VAT registered, you may be able to reclaim the VAT you pay on your water bills, provided the water supply is used within your business.
However, reclaiming VAT can be a complicated process and one that it is best to work out alongside a qualified accountant. Always seek professional advice on such matters before you file your VAT return.
