How to Find Your VAT on Gas and Electricity Bills
VAT, also known as value-added tax, is the charge businesses face for buying electricity and gas from energy supply companies. An additional 20% on your energy bill is included in your total amount and must be paid without reclaimed, calculated from your energy consumption expenses. Although this is the standard VAT rate, some businesses are an exception and can have a deduction on this rate as long as they fit the criteria that the government specify. If you would like to read more information or learn more about the pricing of business energy, you can do so here .
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How to Find Your VAT on Gas and Electricity Bills
To find the Value Added Tax (VAT) on your gas and electricity bills, follow these steps:
First, locate your most recent gas and electricity bills. These bills should contain a breakdown of charges, including VAT.
Look for the VAT rate applied to your energy charges. In the United Kingdom, for example, the standard rate of VAT is 20%, but some energy usage may be eligible for a reduced rate of 5%.
To calculate the VAT amount, you can use the following formula:VAT Amount = Total Energy Charges × VAT RateFor example, if your total energy charges for the billing period are £100, and the VAT rate is 20%, the VAT amount would be:
VAT Amount = £100 × 0.20 = £20
Double-check the bill to ensure the calculated VAT amount matches the indicated amount. It should be a separate line item on your bill.
Note that not all energy usage is subject to VAT. Some businesses or individuals may be eligible for VAT exemptions or reduced rates based on their usage and circumstances. Make sure to check your eligibility for any VAT relief schemes that may apply to you.
If you have trouble finding the VAT amount on your bill or have questions about the charges, don’t hesitate to contact your energy provider’s customer service. They should be able to explain the VAT breakdown on your bill and address any concerns you may have.
VAT on Gas and Electricity: Normal VAT Rate
As aforementioned, the average VAT rate for most businesses is 20% which is added automatically onto the bill and can be read when your energy supplier sends you your bill. Your business energy bill consists of standing charges that are taxed regardless of business use, the unit rates per kWh based on the energy consumption of the billing period, and other hidden charges like transmission and distribution.
As a whole, this is added up and outlined in your bill, and then the 20% VAT is calculated. After this, both the energy costs and VAT are added, and the final amount is shown on the bill, including the VAT.
The VAT calculation can be illustrated through an example. For example, a small business may be charged 14.4p per kWh for electricity. Usually, businesses use between 15,000 and 30,000 kWh of electricity per annum, so their combined energy cost could be £4,400. 20% of this would be £880; this combined cost would be £5,280.
VAT on Gas and Electricity: Exclusions
Although most energy businesses have a 20% VAT rate, some can apply for exclusion. VAT must be paid for by all businesses, but this rule made by the government means that it can be discounted to 5% instead, the same amount that domestic customers use.
For businesses that are not-for-profit organisations or charities, the vat deduction applies. Not-for-profit organisations are designed with the public in mind, with the primary goal of improving and bringing the community together. Their revenue is not used to benefit the shareholder like a regular business but instead put back into the company to fundraise and market their incentives. Examples include charities that receive donations to achieve their goals, hospitals, churches and foundations.
Other businesses qualifying for the reduced VAT rate are classed ‘de minimise. They use low energy, specifically less than 12,000 kWh of electricity or 52,764 kWh of gas per year. Because this shows that the business is dedicated to reducing their energy usage to decrease demand their energy bills, and improve the environment, the government decided that the tax deduction can apply.
Businesses that use 60% of their energy consumption for domestic purposes can apply for a discounted VAT rate because over half of the electricity or gas is used for household activities, and domestic energy is taxed at 5%. For instance, if the business is used as alternative accommodation like a nursing home or shelter, you can sign up for this discount.
For example, if a business were approved for discounted tax due to the reasons above, they would only need to pay 5% extra on their energy bill. If it came to £3,000 per year, their added tax would be £150, and so their total to pay would cumulatively add up to £3,150.
VAT on Gas and Electricity: The Climate Change Levy
The UK government imposes a tax on businesses called the Climate Change Levy to encourage them to decrease their energy usage, an incentive designed to improve the environment. Fewer greenhouse gases are emitted from using non-renewable energy to sell to customers. Due to this tax, businesses become more aware of their consumption and decrease their demand.
Additionally, they may partake in measures that increase the efficiency of their business like installing smart meters and thermostats, replacing faulty and old appliances with modern ones, using LED lighting and even adding insulation like double glazing.
If you are approved for discounted VAT, from 20% to 5%, you no longer have to pay the Climate Change Levy. Therefore, if you are a not-for-profit organisation, use over 60% of your energy consumption for domestic purposes, have a lower energy consumption than average or qualify for any other reason, this extra tax is also eliminated.
How to Find Your VAT on Gas and Electricity – To Conclude
VAT is the added tax that businesses are charged for on top of their electricity and gas prices because they buy energy from suppliers that they then go on to use. It is usually 20%, but exceptions do apply; however, you should first apply through the government to ensure eligibility.
Find out more about switching business energy providers here . Other useful links about Business Energy
Crown Gas and Power
Ebico Energy
Ecotricity
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