Most businesses pay the standard 20% VAT on electricity and gas. Energy for what HMRC calls qualifying use gets a lower rate. That includes energy used in care homes, by a charity for activities it doesn't charge for, and at sites that use very little. On electricity in Great Britain, the lower rate is 0% from 1 October 2026 to 31 March 2027.
How much VAT is on business electricity and gas?
The rate depends on what the energy is used for, not on who pays the bill. VAT is charged on the whole bill, including the standing charge.
VAT rates on energy
| Business use | Qualifying use | |
|---|---|---|
| Electricity in Great Britain | 20% | 0% from 1 October 2026 to 31 March 2027, normally 5% |
| Electricity in Northern Ireland | 20% | 5% |
| Gas | 20% | 5% |
The 0% rate is temporary and only covers electricity in Great Britain. Gas for qualifying use, and qualifying electricity in Northern Ireland, stay at 5%.
Why households pay less
Energy used in a home always counts as qualifying use, so household bills carry the lower rate. That's why most of what you'll read about VAT on electricity quotes 0% or 5%, whereas for a business the starting point is 20%. The average prices on our business electricity and business gas pages are shown before VAT, so add the rate that applies to you.
Reclaiming VAT on energy
If your business is VAT-registered, you can usually reclaim the VAT on energy you use for your business, just as you would on any other business cost. The rate matters most when you can't reclaim it, which is often the case for charities, care homes and businesses that aren't VAT-registered.
Who qualifies for the lower rate?
Qualifying use covers energy used in certain kinds of residential accommodation and energy a charity uses for activities it doesn't charge for, as well as sites that use very little.
Residential accommodation
These count as residential accommodation, even when a business runs them:
- care homes, and other homes providing residential care;
- children's homes and hospices;
- self-catering holiday accommodation;
- caravans and houseboats;
- student and school pupil accommodation;
- armed forces accommodation and religious communities.
These don't count: hotels, inns and similar establishments, hospitals and prisons. Their energy is charged at 20%.
Charities
When a charity uses energy for activities it doesn't charge for, HMRC treats that as non-business use, so it qualifies. Activities it charges for normally count as business use and are charged at 20%. If a charity does both in the same building, its bill may be split between the two rates.
Sites that use very little
If a site uses only a small amount of energy, it gets the lower rate automatically, even if it's a business, and there are no forms to fill in. The limits apply per customer, per premises:
| Average a day | A month | |
|---|---|---|
| Electricity | 33 kWh | 1,000 kWh |
| Gas | 145 kWh | 4,397 kWh |
If you use no more than this but your bill shows 20% VAT, ask your supplier why.
If a building has more than one use
Many buildings mix qualifying and business use, such as a shop with a flat upstairs or a charity with a paying café. In that case, HMRC's 60% rule decides the VAT:
- 60% or more for qualifying use: your whole supply gets the lower rate.
- Less than 60%: only the qualifying share gets the lower rate, and the rest is charged at 20%.
How to get the lower rate
Your supplier only charges the lower rate if it knows your energy qualifies. Sites that use very little get it automatically, but for anything else you'll usually need to send your supplier a VAT declaration (HMRC calls it a certificate). Most suppliers have their own form for this.
The declaration asks for:
- your name and address, and your VAT number if you have one;
- the address of the premises;
- the exact percentage of energy used for qualifying use;
- a signature from someone responsible, such as an owner, director or trustee.
You need a separate declaration for each premises. Keep a copy, and tell your supplier if the way you use the building changes. Your supplier has to make reasonable checks on it, and an incorrect declaration can lead to a penalty.
Paid the wrong rate in the past?
If you've been paying 20% on energy that qualified, ask your supplier to correct your past bills. HMRC lets suppliers correct overcharged VAT for up to four years, but a refund is a matter between you and your supplier.
It works the other way too. If your bills show the lower rate but your energy no longer qualifies, tell your supplier, because VAT that should have been charged can be billed later.
How to check you're paying the right VAT
- Find the VAT line on your bill. It shows the rate you're charged and the amount it's charged on.
- Work out what the energy is used for. It might go on residential accommodation, a charity's free activities or business. If it's a mix, work out the share that qualifies.
- Check your usage against the small-site limits. These are an average of 33 kWh of electricity or 145 kWh of gas a day.
- Send a VAT declaration if you qualify and your bill shows 20%. Your supplier's website usually has the form.
- Check your next bill to make sure it shows the new rate, or the split you declared.
- Update your declaration when things change. If you change how the building is used, or switch supplier, send a new declaration.
Want a second opinion on your bill? Our free check compares your rates, standing charges and contract terms with today's market. A specialist will then ring to talk you through it, with no obligation. You don't need a bill to start.
Questions about VAT on business energy
What is the VAT rate on business electricity?
It's 20% for most businesses. Electricity for qualifying use, such as care homes and very small sites, is 0% in Great Britain from 1 October 2026 to 31 March 2027, and 5% in Northern Ireland.
Is there VAT on business gas?
Yes, and most businesses pay 20%. Gas for qualifying use is 5%, and that includes sites that use no more than an average of 145 kWh a day.
Does the 0% rate apply to my business?
It only applies to electricity for qualifying use in Great Britain, which covers residential accommodation, a charity's non-business activities and very small sites. Most business electricity stays at 20%.
Do hotels pay the lower rate of VAT on energy?
No. HMRC says fuel and power supplied to hotels, inns or similar establishments is standard-rated, so they pay 20%. Self-catering holiday lets and caravans are different and can qualify.
Can I reclaim the VAT on my energy bills?
If you're VAT-registered, you can usually reclaim the VAT on energy used for your business through your VAT return, just as you would for other business costs.
Do I need a new VAT declaration if I switch supplier?
Yes. A declaration is made to one supplier only, so when you switch, send your new supplier a declaration of its own.
Sources
- HMRC, VAT on fuel and power (VAT Notice 701/19): the temporary 0% rate on electricity in Great Britain, the 5% rate in Northern Ireland, qualifying use, the small-site limits, the 60% rule and declarations.
- HMRC, VAT rates on different goods and services: the 5% rate on gas for domestic and residential use or a charity's non-business use.
- HMRC, reclaim VAT on business expenses: reclaiming VAT through your VAT return.
- HMRC, how to correct VAT errors (VAT Notice 700/45): the four-year limit, and refunds being a matter between you and your supplier.