As a business, keeping tabs on your expenses and ensuring you’re getting the best value for your money is important. Knowing how much business energy you’re paying for is essential. Not only will this help you stay accountable for your expenses, but it can also help you make more informed decisions about where to cut costs. Did you know that your business could be paying too much VAT on energy? In this blog post, we’ll look at how vat is applied to energy and how you can ensure you’re getting the best deal.
What is VAT?
VAT, or Value Added Tax, is charged on the value of most goods and services in the United Kingdom. It’s also sometimes referred to as a “goods and services tax” (GST). The standard UK VAT rate is 20%. There are reduced rates of 5% for some items, such as food and children’s clothing, and a zero rate for some items, such as books and newspapers.
Should my business sign up for VAT?
It is required by law that businesses with an annual taxable turnover of more than £85,000 register for Value Added Tax. Voluntary VAT registration is available to companies with annual sales below this threshold.
- When you register, your VAT registration certificate will be sent to you by HMRC. This proves:
- How and when to file your first VAT return and pay the associated tax
- In which your “registration” officially begins to be active (the date you went over the threshold or the date you asked to register)
Which goods and services are subject to value-added tax?
If your business is VAT-registered, the price of your products and services will normally increase by 20%. This value-added tax (VAT) must be paid to HM Revenue and Customs (HMRC) every three months.
Any product or service outside the scope of the UK’s Value Added Tax system and hence VAT-free. Even though it is a business-to-business transaction, gas and energy purchased by a company are still subject to VAT and cannot be refunded. You should always monitor your contract renewals to ensure you aren’t overpaying. The Do It For You service takes care of all of this.
How much is VAT on business energy?
To encourage energy efficiency and aid in meeting national targets, the government gives a reduced rate of 5% VAT for enterprises that consume low levels of electricity.
If your business’s daily gas use is below 33-kilowatt hours (kWh), monthly electricity consumption is below 1000 kWh, and the annual energy consumption is below 12,000 kWh, your provider should immediately switch you to the lower, VAT-free rate.
Checking your bill is a good idea to make sure this lower VAT rate was applied. Contact your electricity provider if you believe you should be receiving the lower VAT rate on your company’s electricity bills. Click here for more information on VAT paid on energy.
How much is the VAT on business gas?
Commercial natural gas likewise incurs a 20% VAT, with the option to pay a 5% rate. Less than 145-kilowatt hours (kWh) of gas consumption per day qualifies a firm for the reduced VAT on gas. The annual equivalent is 52,764 kWh, or 4,397 kWh every month.
Review your most recent commercial gas bill in comparison to the usage above rates to determine if you qualify for the reduced VAT on the gas rate. Whether you’re a business owner and use electricity, check your statement to see if you are being overcharged for value-added tax. If so, contact your source immediately.
Should I pay VAT on business gas and electricity?
All energy consumption, whether commercial or personal, is subject to VAT. That means whether you’re using your house as an office or a commercial space, you’ll have to pay value-added tax on the cost of any gas or energy you consume. Even if the purchase of commercial energy is technically a business-to-business purposes, the VAT cannot be refunded in this case.
Can my business get the VAT back on the business energy it uses?
It is expected that a business that is VAT-registered can deduct VAT paid as input tax on business expenses following the standard VAT deduction rules. This holds whatever interest rate you’re paying, 20% or 5%.
Visit the HMRC webpage to learn how much tax refund your company is eligible for.
You should also realise that VAT is not charged on various expenses that fall outside of its purviews, such as company rates, council tax, wages, and a lot more.
Could my company qualify for a reduced VAT rate on its energy bills?
However, there are other scenarios where you may be eligible to pay lower energy VAT rates than the de minimis threshold. Examples of this are:
- Your organisation operates exclusively for charitable or other non-commercial purposes.
- Workspaces are double as living quarters.
- Academies and other schools that don’t charge tuition.
- Your company uses at least 60% of its energy for residential purposes.
- Religious communities like monasteries and convents.
- Most of the employees also live in facilities such as dormitories, nursing homes, and other forms of residential care.
- Holiday lodging where guests are responsible for preparing their meals.
Only certain of your company’s expenses may be eligible for the discounted rate. If that’s the case, a mixed-use’ contract could be ideal for your company. Parts of your company that meet the criteria can pay a reduced rate, while the remaining 20% of your company must pay the standard rate. You should talk to your service provider or the energy expert handling your pricing comparison to see if you qualify for this.
Where can I look up the business energy VAT rates?
Looking at your most recent commercial energy bill is the quickest approach to determining your VAT contribution. Every month, you should receive a statement detailing your balance, the interest rate, and the amount you’ve paid toward the debt.
How can I cut costs on my business energy bills?
There are a few things that you can do to cut costs on your business energy bills:
1. Switch to a more affordable energy plan. There are a lot of different plans available, so shop around and find the best business energy supplier that matches your needs.
2. Invest in energy-efficient appliances and equipment. This can help you save money in the long run by reducing your energy usage.
3. Make sure that your business is adequately insulated. This will help keep your energy usage down and reduce your monthly bills.
4. Schedule regular maintenance checks for your equipment. This will help ensure that everything runs efficiently and prevent small problems from turning into big ones.
The vat on energy can be a significant expense for businesses. By understanding the different rates and what qualifies as energy, business owners can work to reduce their vat bills. Are there any other ways your business could save money on its taxes?