VAT on business energy is a 15-percentage-point question that most UK businesses get wrong — either by paying 20% when they qualify for 5%, or by claiming 5% when they should be on 20% (which causes problems on inspection). This guide explains the 2026 VAT rates, who qualifies for the reduced rate, the VAT declaration process, and how to claim back overpaid VAT for previous years.
VAT rates on UK business energy 2026
- Standard rate: 20%. Default for all business energy supply.
- Reduced rate: 5%. Available to qualifying low-usage businesses, charities and certain non-business uses.
Who qualifies for the 5% reduced VAT rate?
Three routes to the 5% rate:
Route 1: De minimis usage
You qualify if your usage is below either threshold:
- Electricity: under 33 kWh per day (averaged across the bill period; equivalent to 1,000 kWh/month).
- Gas: under 145 kWh per day (equivalent to 4,397 kWh/month or 5 therms/day).
Suppliers should automatically apply the de minimis rate when usage drops below threshold — in practice they often miss it. Check your bill rate.
Route 2: Non-business use over 60%
If at least 60% of the energy supplied is used for non-business purposes (residential, charitable non-trading), the entire supply is charged at 5% VAT. Common cases:
- Care homes, residential schools, hospices.
- Charity head offices where the activity is non-commercial.
- Mixed-use buildings (shop-with-flat-above) where the residential share dominates.
Route 3: Specific HMRC concessions
Other qualifying cases include:
- Children’s homes, hospices, hostels.
- Accommodation for armed forces.
- Sheltered housing.
- Certain religious buildings.
How to apply for the 5% VAT rate
- Download a VAT Declaration form from your supplier’s website.
- Complete the qualifying basis (de minimis / non-business use / concession).
- Sign and return to your supplier.
- Supplier reviews and applies the reduced rate from the next billing period (or backdates per HMRC rules).
Backdating VAT refunds
If you have been overpaying VAT for previous periods, you can claim a refund. HMRC’s standard look-back period is 4 years. Backdating requires:
- Evidence the qualifying status applied throughout (charity registration date, usage data, occupancy records).
- A backdated VAT Declaration submitted to the supplier(s) for the periods in question.
- Supplier issues credit notes for the difference.
Larger backdated claims are sometimes referred by suppliers to HMRC for confirmation, which can extend the process to 6+ months.
VAT and CCL interaction
If you qualify for 5% VAT under the de minimis rule, you also qualify for full CCL exemption on the same supply. Both reductions apply automatically once your VAT Declaration is processed — you do not need separate forms.
Read our Climate Change Levy guide for the full CCL detail.
Common VAT mistakes (and how to avoid them)
- Forgetting to apply when qualifying. Worth thousands per year for low-volume sites.
- Claiming on the wrong basis. HMRC will reverse incorrect declarations on inspection. Be precise about which qualifying route you use.
- Not updating after a use change. If your business grows past the de minimis threshold, you must notify your supplier promptly.
- Forgetting site changes. Each meter has its own VAT status — opening a new site or moving location resets the qualifying assessment.
Frequently Asked Questions
20% by default; 5% for qualifying low-usage businesses (under 33 kWh/day electricity or 145 kWh/day gas), charities engaged in non-business activity, and certain HMRC-approved concessions.
Submit a VAT Declaration form to your energy supplier confirming you qualify under one of the HMRC routes. The supplier applies the rate from the next billing period.
Yes — HMRC allows up to 4 years of backdated VAT refunds if you can prove you qualified for the reduced rate throughout. Submit backdated VAT Declarations to the suppliers in question.
Charities pay 5% VAT on energy used for non-commercial charitable activities. Energy used for the charity’s commercial activities (charity shops, paid services) is at 20% by default, unless the de minimis usage threshold applies.
If you qualify for 5% VAT under the de minimis route, you are also exempt from CCL on the same supply. Both reductions are typically applied via the same VAT Declaration.
Worried you are paying too much VAT? Get a free 60-second business energy review — we check VAT and CCL eligibility as part of every quote.
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