“I would like to say a huge thank you for your help and professionalism in the way you have helped our charity switch to a better energy deal. You were fast, efficient and polite.”
Charity treasurer, Shropshire – Client since 2012
VAT on electricity for charities
Call us to discuss your VAT query, and if necessary, we will send you the correct VAT declaration form to complete for your energy supplier.
Energy suppliers will need this to confirm whether your income is from grants and donations, or charges for business activities. This may not be needed if you have a relatively low annual consumption and qualify through the de minimis route. We can also recover any VAT that has been overcharged previously by your energy supplier.
You may find our guide below helpful when considering VAT on electricity for charities. There are four points to consider, but there can be variances within these so call for confirmation.
1. How much energy does your charity use each month?
If your charity uses more than 1,000 kWh of electricity per month, then please go to section 2 below.
This is the first figure energy companies look at when billing VAT on electricity for charities. If your charity uses less than 1,000 kWh of electricity per month then your electricity bills will be at the lower VAT rate of 5%.
In this instance, there is usually no need to file a VAT declaration with your electricity supplier.
However, if you receive a bill with 20% VAT, this could be because your electricity use increased in that particular billing period. If charities use more than 1,000 kWh per month, then supplier bills will automatically charge VAT at the higher rate of 20%.
If you are billed quarterly (by SSE for example) then 3,000 kWh per quarter will be the threshold figure.
A simple solution is to send in a VAT declaration to your energy company. Call us on 0800 977 5462 and we will email you the correct VAT form for your supplier. We can also log this for you and chase up any refunds of overcharged VAT on your electricity bill.
Incidentally, the threshold for gas consumption is 4,397 kWh per month. Anything less than this should see all bills charged at 5% VAT.
If your annual energy use is above the threshold, then we need to file a VAT form with your energy supplier. Please read below and see which of the three options applies to your charity. Then call us for advice.
“Very hands-on and involved from beginning to end, and even after our new energy supply began, they keep in contact to make sure the new supplier has not missed any details and that we are not being overcharged.”
Non-profit organisation, Oxfordshire – Client since 2020
2. Do you provide residential accommodation?
If not, please go to section 3 below.
For example, residential accommodation could be for a children’s home, a hospice, or a care home for the elderly. In this case, VAT could be charged at the lower rate of 5% on all energy bills.
Please call us for the VAT form for your supplier, we will log this with your energy supplier and reclaim any overpaid VAT in the past.
3. Charitable activities and Business activities
If you have read this far, then you need to work out the percentage of your electricity supply that is used for ‘business’ activities and ‘charitable’ activities. We can help you with this (no charge), and log the VAT form for you.
This is where it gets a little more complicated. If your monthly electricity use is over 1,000 kWh, then you need to work out how much of that electricity is used for Charitable activities and how much for Business activities.
In a nutshell, if more than 60% of the electricity used in a year is for Charitable activities, then VAT on all your electricity bills will be at the lower rate of 5%. This is the criteria set out by HMRC.
If less than 60% is for Charitable activities, then the VAT on your electricity bill will be split. Qualifying percentage at 5% VAT, the remainder at 20%.
Which activities are classed as Charitable or Business?
A good way to look at this is to ask the question, “do we charge for this activity or service?” If you receive a payment, even a nominal amount, this is classed as a business activity by HMRC.
Examples of business activities can include the hiring out of rooms, charging for food and drink, charging for consultations or meetings.
VAT on electricity for charities can be something of a minefield. For professional advice, please call Perfect Clarity on 020 3372 6517 (or freephone 0800 977 5462).
We look forward to bringing some clarity to your energy bills.