What is Value Added Tax (VAT) and Climate Change Levy (CCL) and do I have to pay it?
This page explains the rates at which Value Added Tax (VAT and Climate Change Levy (CCL) are chargeable on electricity and gas supplies.
Value Added Tax
In line with current legislation (VAT Act 1994 as amended), there are two rates of VAT applicable to supplies of electricity and gas:
the standard rate (at 20%)
the reduced rate (at 5%)
Where an electricity or gas supply is used wholly or partly for domestic or charitable non-business use, that part of the supply can qualify for the reduced rate of VAT. This is known as ‘qualifying use’. Members with qualifying use are required to submit a separate Customer Declaration Certificate for each fuel type (gas or electricity) at each premise, to advise us what percentage is used for domestic or charitable non-business purposes.
Climate Change Levy (CCL)
CCL is a government-imposed tax to encourage a reduction in carbon emissions and greater efficiency of energy used for business or nondomestic purposes. CCL is chargeable on units/kWh used and not on other components of the bill such as fixed daily charges. Separate rates have been set for electricity and gas. These often change annually as a result of Government Policy.
Under current legislation:
Where VAT is charged at the standard rate, CCL (plus VAT on CCL) will usually be added to the bill.
Where VAT is charged at the reduced rate, the supply is automatically excluded from CCL.
These rules are applied automatically at the time of billing.
Please note that business members entitled to CCL relief (but not VAT relief) must submit a PP11 Supplier Certificate for each account, to advise us what percentage of CCL relief is applicable. PP11s can be downloaded from the HM Revenue & Customs (HMRC) website,. We'll not be able to apply for CCL relief until we have received the PP11 certificate correctly completed.
What type of user are you?
Business or non-domestic use
If your electricity or gas supply is used solely for business or non-domestic purposes.
VAT will usually be charged at the standard rate and CCL (plus VAT on CCL) will also be added to the bill unless a specific CCL relief applies and we have received a PP11 certificate from you.
Low usage business or non-domestic use
Under a government concession, ‘low usage’ of electricity and gas for business or non-domestic purposes is chargeable at the reduced rate of VAT. These supplies are automatically excluded from CCL.
The low usage thresholds are:
- at or below 1,000 kWh per month during the billing period.
- at or below 4,397 kWh per month during the billing period.
Where more than one meter is billed for a premise, consumption across all meters is combined in order to take into account the total quantity supplied through all relevant meters at this premise.
There is no requirement for you to claim the reduced rate of VAT or exclusion from CCL on low usage as these concessions are applied automatically at the time of each billing
Domestic or charitable non-business use (qualifying use)
If your electricity or gas supply is used wholly or partly for domestic or charitable non-business purposes, that part of the supply qualifies for the reduced rate of VAT and for exclusion from CCL. This is known as qualifying use. The percentage of qualifying use can vary between energy supplies to the same site. Members are therefore required to submit a separate Customer Declaration Certificate per fuel, per premise, to advise us what percentage of each supply meets the qualifying criteria (set by the government).
We can't assume a percentage of qualifying use on behalf of the customer. In the absence of a valid Customer Declaration Certificate, supplies will be charged with VAT and CCL at the rates appropriate to business or non- domestic use. Where there is both qualifying and non-qualifying use of the supply, this is known as ‘mixed use’.
Where there is a mix of activities, some of which meet the government’s criteria for domestic or charitable non-business use and some which do not, you'll need to estimate the split between qualifying and non-qualifying use, for each individual fuel type (gas or electricity) at each premise, in order to submit the appropriate VAT declaration. Your estimate can be based on any method that is ‘fair and reasonable’. We're aware of some organisations using the rating of appliances, annual consumption or square footage to carry out these calculations. Charities sometimes use their annual accounts to estimate the split between ‘nonbusiness’ funding and ‘business’ income. In all cases, you must be able to demonstrate to HMRC (if required), that any VAT declaration you provide to us is accurate.
Where there is 60% or more qualifying use (either domestic or charitable non-business), the whole of the supply is chargeable at the reduced rate of VAT and is excluded from CCL. Your Customer Declaration Certificate should, however, reflect your best estimate of the actual percentage of qualifying use for each meter as, under HMRC guidelines, we cannot accept wording such as ‘over 60%, therefore 100%’ - or similar - and will have to return the certificate to you for further clarification.
Where there is between 1-59% qualifying use (either domestic or charitable non-business), that part of the supply will be charged at the reduced rate of VAT and will automatically be excluded from CCL. The non-qualifying use will be subject to VAT and CCL at the appropriate business /non-domestic rate.