VAT on business energy: how to qualify for the reduced 5% rate

The two VAT rates for UK business energy

Business energy in the UK is charged at either 20% (standard rate) or 5% (reduced rate). The default is 20%; you have to qualify — and formally declare — to get 5%.

When you qualify for 5% VAT

You can pay 5% VAT on business energy if any of the following apply:

• Charities using energy for non-business (charitable) purposes
• Residential accommodation — care homes, children's homes, student halls, monasteries, some houseboats
• Low-usage sites — below 33 kWh/day electricity or 145 kWh/day (5 therms/day) gas
• Mixed-use sites qualify partially, based on the residential / charitable portion

How to claim the reduced rate

Complete a VAT declaration form (VAT-DEC or supplier equivalent) stating the percentage of your energy use that qualifies for the reduced rate. Submit it to your supplier — they'll apply the new rate to future bills and, in most cases, refund up to 4 years of past overpayments.

Getting the paperwork right

Errors in VAT declarations can trigger HMRC clawback and interest. If you're unsure of your qualifying percentage — especially on mixed-use sites like care homes with a training suite, or churches with a rented hall — get advice before submitting.