VAT on Business Energy Explained 

What Is VAT? 

VAT (Value Added Tax) is set by the government and is added onto the cost of goods and services sold in the UK. The standard rate of VAT is 20% and this also applies to your business electricity and gas bills. 

Some businesses may be eligible for a reduced charge at 5%.

How Much VAT Should Your Business Pay? 

Your business energy supplier will automatically add VAT to your commercial gas and commercial electricity bills. You do not need to do anything unless you think you qualify for the reduced rate. Businesses in the UK currently pay 20% VAT. 

Here are some tables that provide you with examples of how much VAT you would pay based on typical usages.

VAT on Business Electricity Bills

Annual price is based on average UK consumption and prices in 2024 including standing charges.

VAT on Business Gas Bills

Should Your Business Be VAT Registered? 

Businesses must be VAT registered if they have a turnover of more than £85,000 annually. Once you are registered you will be given a VAT number, instructions on how to complete your annual tax return and all other important information. 

Being VAT registered allows you to claim back VAT on certain expenses if you require the good or services to operate your business. 

Who Is Eligible For The Reduced VAT Rate? 

Any business that falls under the following circumstances is eligible for a 5% VAT rate. 

• Any business that is a charity or non-profit 
• Businesses with low usage (monthly usage of 4,397 kWh for gas and 1,000 kWh for electricity) 
• At least 60% of electricity is used for domestic purposes. 

How Do I Apply For A Reduced VAT Rate? 

You can view your business VAT account on the GOV.UK website and request changes if your business falls into one of the above categories for reduced VAT rates.