VAT on low energy use for village hall energy bills
If your village hall energy bill has VAT charged at 5%, but others are billed at 20%, this is likely to be down to the amount of energy used. Low energy consumption means your hall will be charged the lower rate of VAT. But once energy use rises above a threshold figure, then the higher rate kicks in.
For electricity bills, the higher rate of VAT is charged if you use more than 1,000 kWh per month. If you have a quarterly village hall energy bill, then your supplier will base this on the average use per month in that quarter. So if your average is greater than 1,000 kWh of electricity per month, the whole quarterly energy bill will be charged at 20% VAT.
The same applies to your gas bills, but the threshold figure is different. Your gas consumption has to be above 4,390 kWh per month for the higher rate of VAT to be charged.
It is therefore worth looking back over previous bills to see if any have been charged at 20%. Especially gas bills, which will have a higher consumption during winter months. Then read the section below on business and non-business use. If you think your village hall energy bill should be billed at the lower rate of VAT, let us know and we will send you a VAT form to complete for your supplier.
VAT on your village hall energy bill
Businesses pay VAT at 20% their energy bill. However, some organisations can pay the lower rate of 5% on ‘non-business’ use. This can sometimes be overlooked. So do check your energy bill and see if VAT is being charged at 5% or 20%. Energy companies won’t apply this automatically for you.
If you think your village hall energy contract should include the lower rate of VAT, please complete a VAT declaration. Just ask us for the relevant VAT form for your supplier. Suppliers will also back date up to 4 years of over charged VAT.
However, it isn’t always this straightforward. The lower rate of VAT is only for charitable, or ‘non-business’ use.
So we need to clarify which activities qualify as ‘non-business’ and ‘business’ use for VAT. Business use is the hire of the village hall by someone. This could include hire of the hall for a reception, or by a yoga instructor to teach a class. In these circumstances, the reception organiser and yoga instructor will pay a fee to the village hall to use the premises.
The percentage of energy used for business and non-business use, will determine the level of VAT charged. The relevant VAT notice on HMRC website site is VAT Notice 701/19 which states:
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.
For example, you work out that 70% of the village hall gas supply is used for non-business (qualifying) use. As this is more than 60%, then the whole gas bill should be charged at the reduced rate of VAT.
Problems with estimated meter readings
We recommend checking your village hall energy bill. Has your supplier billed to actual readings, or estimated readings? There is a fairly standard key for meter readings:
A = Actual reading (taken from a smart meter or by a meter reader who visited the premises)
C = Customer reading
E = Estimated reading
If you have several estimated bills back to back, this can lead to issues. For example, the supplier may have underestimated your readings considerably. In this case, the village hall may have used substantially more electricity or gas than they have actually billed you for. If this has gone on for a while, then you may receive a large catch up bill once an actual reading is provided.
This situation can often occur after you switch to a new energy company. The new supplier doesn’t know how much energy you are likely to use, so estimates the bills. For peace of mind, when we put through energy contracts for village halls, we agree how much the monthly or quarterly debit will be initially. This will be backed up by historical use so we are unlikely to see the problems above.
You can read more on issues surrounding estimated bills in this article.
If you have received an estimated energy bill, just take a meter reading and call it through to the supplier. If you are a customer of ours, just email it over and we will ensure it is logged for you. This forces your energy supplier to bill to this reading in your next invoice.
It is therefore good practice to log regular meter readings with your energy supplier. For village halls, quarterly readings will be sufficient.