VAT and Climate Change Levy on business energy: are you overpaying?
Business energy is charged at 20% VAT plus Climate Change Levy (0.801p/kWh for 2026/27) by default — but you qualify for 5% VAT and CCL exemption if any of three things is true: your usage is below the de minimis thresholds (averaging no more than 33 kWh of electricity or 145 kWh of gas per day), you are a charity or non-profit using the energy for non-business activities, or 60% or more of the energy is for domestic use (care homes, student accommodation, caravan parks). Claim with a one-page VAT declaration to your supplier — and overpayments are reclaimable up to four years back.
Last reviewed 2 September 2026 by Utilities Made Simple · independent, whole-of-market, supplier-paid — how we are paid
The two charges, in plain terms
- VAT — 20% on business gas and electricity as standard, reduced to 5% for qualifying supplies. Unlike most business VAT, energy VAT at the reduced rate is not generally recoverable as input tax — which is why paying the right rate matters even for VAT-registered firms.
- Climate Change Levy (CCL) — a government environmental tax itemised on the bill, 0.801p per kWh on both electricity and gas for 2026/27. The rule of thumb: if you qualify for 5% VAT, you do not pay CCL on that supply.
The three routes to 5%
| Route | Who qualifies | The detail |
|---|---|---|
| 1. De minimis (low usage) | Any business with genuinely small supplies | Average no more than 33 kWh/day electricity (~1,000 kWh a month / ~12,045 kWh a year) or 145 kWh/day gas (~4,397 kWh a month). Assessed per supply, per billing period — many small offices, holiday lets and satellite sites qualify without knowing it. Suppliers should apply it automatically; plenty don’t. |
| 2. Charity / non-profit | Charities and non-profits, for non-business activities | The reduced rate applies to the proportion of energy used for non-business (charitable) purposes. Mixed-use premises apportion — 60%+ non-business/domestic qualifies the whole supply. |
| 3. Domestic use | Premises where people live | Care homes, student accommodation, staff accommodation, caravan parks, monasteries: where 60% or more of the energy is for domestic use, the entire supply is charged at 5% and CCL-free; below 60%, the domestic proportion still qualifies. |
How to claim (and reclaim)
- Establish which route fits and, for mixed use, the qualifying percentage — floor area and usage patterns are the usual evidence.
- Complete your supplier’s VAT declaration form (one per supplier, covering each meter) stating the qualifying use and percentage. We prepare these with you as part of the free audit.
- Going forward, bills switch to 5% and CCL disappears from the qualifying supply.
- Backdating: ask the supplier to refund over-charged VAT and CCL for up to four years. On a care home or a portfolio of small sites this is routinely a four- or five-figure repayment.
Declare accurately — the form carries legal weight and HMRC can assess for under-declared VAT. If circumstances change (usage grows past de minimis, the domestic proportion falls), update the declaration. We review eligibility whenever we re-contract a supply. Energy-intensive industries in Climate Change Agreements get separate CCL discounts — a different scheme from the exemptions above.
The five-minute self-test
- Bill shows 20% VAT and usage under ~1,000 kWh electricity a month? Claim.
- Registered charity paying 20% on any site? Almost certainly reclaimable for the non-business share.
- Anyone sleeping on the premises — residents, students, staff? Check the 60% test.
- CCL line on a bill that should be 5%-rated? Both are wrong; both come back.
Or skip the test: send the bill to our free bill audit and we check VAT and CCL on every supply as standard — accountants send us client bills for exactly this reason.
Common questions
What are the de minimis thresholds for 5% VAT on energy?
An average of no more than 33 kWh of electricity per day (roughly 1,000 kWh a month) or 145 kWh of gas per day (roughly 4,397 kWh a month), assessed per supply per billing period. Qualifying supplies are also exempt from Climate Change Levy.
How far back can I reclaim overpaid VAT and CCL?
Up to four years. The refund comes from the supplier once a valid VAT declaration establishes eligibility — for care homes, charities and multi-site operators the backdated amounts are often substantial.
We are VAT-registered — does the rate even matter?
Yes. The 5% is a genuine cost reduction, and CCL disappears with it (0.801p on every kWh). It is not simply reclaimed-either-way input tax, which is why this is one of the most commonly missed savings on business bills.
What is the current Climate Change Levy rate?
0.801p per kWh on both electricity and gas for the 2026/27 year, which began on 1 April 2026 (it was 0.775p before that), itemised as its own line on the bill. Reduced-VAT supplies are exempt; energy-intensive industries with Climate Change Agreements receive separate discounts.
Who fills in the VAT declaration form?
You sign it — it is your declaration to the supplier — but we prepare it with you as part of the free audit, calculate mixed-use percentages, and chase the backdated refund through to payment.
Not sure where you stand? Send us a bill.
Upload a recent bill and a specialist will check your rates, VAT, levies and contract end date against the live market — free, usually the same working day. Prefer email? Send it to info@utilitiesms.co.uk. If your deal is already good, we will tell you to keep it.