VAT on Church energy bills
Is your energy supplier charging the correct rate of VAT?
Is your electricity or gas consumption below the de-minimis value set by HMRC? If it is higher, does your Church qualify for the lower rate? To do so, HMRC asks that you distinguish between charitable and business activities. Do you know that by hiring out a room, even for a minimal fee, HMRC class this as business use?
Please call 020 3372 6517 for any advice regarding VAT on church energy bills.
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How do suppliers charge VAT on Church utility bills?
Have you submitted a VAT declaration to your energy supplier? If you haven’t, then the VAT on every bill you receive will be determined by the amount of gas or electricity used.
VAT on Church gas bills
The VAT threshold for gas is just over 52,000 kWh per year, or 4,397 kWh per month. Therefore if you haven’t submitted a VAT declaration to your Church gas supplier, and your latest invoice is less than 4,397 kWh per month, the VAT will be 5%. If you are billed quarterly, then the VAT will be determined by the average gas use on the whole bill.
An average gas consumption of more than 4,397 kWh per month will result in a VAT charge of 20% for that bill. So you can see how the rate of VAT could vary during the year. If your Church uses 45,000 kWh of gas per year, you may initially think that this will be under 52,000 kWh and your bills will all be at 5% VAT.
However, the gas supply in churches is largely used for heating. The majority of the gas use, therefore will be in the winter months. Dividing 45,000 kWh of gas over 6 months give you an average of 7,500 kWh, which is easily above the VAT monthly threshold (4,397 kWh). And a VAT charge of 20% on those gas bills.
Read the section below on charitable activities, as Churches can usually qualify for the lower rate of VAT. You just need to submit a VAT declaration.
VAT on Church electricity bills
The VAT threshold for electricity is much lower than for gas. It is 12,000 kWh per year, or 1,000 kWh per month. The same rules apply, but electricity use in churches is much more constant throughout the year. This means you are less likely to be caught out with more winter use.
VAT on Church water bills
There is no VAT chargeable on Church water bills.
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Submitting a declaration for VAT on Church utility bills
If you have confirmed that your gas or electricity consumption is higher than the thresholds outlined above, you need to submit a VAT declaration. This will tell your energy supplier that you meet the criteria required by HMRC to qualify for the lower rate of VAT on your utility bills.
You will need to submit one declaration per meter. We can send you the most up to date VAT declarations for the majority of suppliers.
There is one question though, on all the suppliers declarations, that causes some confusion:
Please enter the percentage of your gas/electricity supply that qualifies for the reduced rate of VAT.
All of it, so 100%, right? Not necessarily.
You may well end up easily qualifying for 100% of your church energy bills at the lower rate of VAT. But entering 100% as the answer here, will probably lead to your claim being rejected. Here’s why.
Charitable use and Business use for Church utility bills
HMRC ask suppliers to distinguish between Charitable use and Business use. HMRC define Business use as any service that is charged for, even for a nominal fee to cover costs.
A common service that Churches charge for, is the hire of Church rooms.
Take your electricity supply, for example. Calculate the percentage of the whole electricity supply that is used for Business activities. Everything else will be classed as Charitable activities (non-business). As long as the figure for Charitable activities is 60 % or higher, then all your bills will be charged at the lower rate of VAT.
This is the relevant notice from HMRC:
If 60% or more of the fuel or power is for qualifying use, you should treat the whole supply as for qualifying use and charge tax at the reduced rate.
You can read the all the HMRC guidelines on VAT qualifying use here, scroll down to section 3.4.
Incidentally, some brokers only work with half a dozen suppliers. And a church energy group might only work with one. This is why we our churches have gas prices considerably lower than others. They benefit from our expertise and relationships with energy suppliers, built over many years.
If you have any questions about VAT on Church utility bills, please call our energy experts on 020 3372 6517. We can advise if your Church qualifies for the lower rate of VAT, and help you claim it. Additionally, we can claim back any overcharged VAT for you.
The independent energy broker
Perfect Clarity are a leading UK business energy broker. Businesses of all sizes use our services to source energy and water prices.
Unlike many other brokers, we are on hand throughout your business energy contracts should you need any support.
Call us for clarity on your business energy prices. Perfect Clarity.
Freephone: 0800 977 5462
Telephone: 020 3372 6517
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