VAT and Climate Change Levy on business energy

Which VAT rate applies to business energy

HMRC's guidance on fuel and power (VAT Notice 701/19) says supplies of fuel and power are subject to the standard rate of VAT unless they are for qualifying use, which gets the reduced rate. For most businesses that means:

• business use is charged at the standard rate, currently 20%
• qualifying use is charged at the reduced rate of 5% (and qualifying electricity in Great Britain is temporarily zero-rated; see below)

HMRC lists four kinds of qualifying use:

The de minimis limits apply whether the bill is based on an actual or an estimated reading, and you do not need a certificate for them. HMRC also says the de minimis does not apply to electric vehicle charging supplies, which do not count as domestic use whatever the quantity.

The temporary zero rate on qualifying electricity

HMRC has introduced a temporary zero rate of VAT on qualifying supplies of electricity in Great Britain (England, Scotland and Wales). It applies from 1 October 2026 to 30 June 2027: the original end date of 31 March 2027 was extended by three months at Budget 2026. During that period, qualifying supplies of electricity in Great Britain are charged VAT at 0%.

What the notice makes clear:

• it covers electricity only; gas and other fuels are unchanged
• it covers qualifying use only; electricity for business use stays at the standard rate
• there is no change to what qualifies: the same domestic, charity non-business, de minimis and 60% rules apply
• in Northern Ireland, qualifying supplies of electricity stay at the reduced rate of 5%

So a small business whose electricity stays within the de minimis limit, a charity using electricity for non-business activities, or premises with qualifying domestic use, may see the zero rate on electricity during this period. Your supplier applies the VAT rate, so check your bills and tell your supplier if your use has changed. This is time-sensitive, so check HMRC's current notice before relying on it.

Mixed use and the 60% rule

Many premises are used partly for business and partly for a qualifying purpose: a pub or shop with a flat above, a farm with a farmhouse, or a charity that runs some paid activities. HMRC's mixed-use rule decides the VAT:

• if 60% or more of the fuel or power is for qualifying use, the whole supply is treated as qualifying and charged at the reduced rate
• if less than 60% is for qualifying use, the qualifying part is charged at the reduced rate and the rest at the standard rate

For mixed use, HMRC says the supplier should obtain a certificate from the customer declaring the percentage of qualifying use at each premises, signed by a responsible person. Suppliers must make reasonable checks, so you may be asked for the calculations behind it, and you must tell the supplier if your qualifying use changes. HMRC warns that anyone giving an incorrect certificate may be liable to a penalty, so base it on real figures and take professional advice if you are unsure.

Sector-specific points are covered in energy suppliers for charities, hospitality energy and farm energy.

VAT in common business situations

This is a summary of HMRC's notice, not tax advice. The supplier decides the rate it charges based on the information and any certificate you give it.

What the Climate Change Levy is

The Climate Change Levy (CCL) is an environmental tax on energy used by businesses. GOV.UK says you pay CCL at the main rates on electricity, gas and solid fuels if your business is in the industrial, commercial, agricultural or public services sector, and that the CCL main rates are listed on your business's energy bill.

GOV.UK says you do not pay the main rates on certain supplies, for example if you are:

• a business that uses small amounts of energy
• a domestic energy user
• a charity engaged in non-commercial activities

Energy-intensive businesses that have entered into a Climate Change Agreement with the Environment Agency can get a reduction on the main rates. GOV.UK also lists exempt supplies, including fuel used for certain combined heat and power schemes, and electricity generated from renewable sources before 1 August 2015. That last point matters for green tariffs: buying renewable electricity today does not by itself remove CCL. See green business energy.

CCL main rates for gas and electricity are set per kWh and published for each year from 1 April; HMRC has published the rates from 1 April 2026 and from 1 April 2027. We do not quote them here because they can change: check GOV.UK's Climate Change Levy rates page for the current figures.

How VAT and CCL show up on a quote

When you compare quotes, make sure each one treats VAT and CCL the same way. Practical checks:

• Are the prices shown before or after VAT and CCL? Compare like with like; some quotes show energy charges only.
• Has the supplier assumed the right VAT rate? If you have qualifying use, the supplier will need to know, and for mixed use it will need a certificate.
• Is CCL included or listed separately? If you think you are exempt or entitled to a reduced rate, raise it with the supplier before the contract starts.
• Does the green option change anything? Not for CCL, unless your supply falls within one of GOV.UK's exemptions.

Forever Communications works as an agent of Fidelity Energy, which prices your supply across a panel of 24+ suppliers (its own figure). We help you lay the quotes out on the same basis so tax treatment does not hide the real difference between them. We are not tax advisers: for questions about your VAT position or CCL relief, the supplier, HMRC's guidance and your accountant are the right sources. Fidelity Energy is normally paid commission by the supplier, included in your rates, and Forever Communications receives a share; see energy broker fees. Remember that there is no business energy cooling off period once you agree a contract.

Contact us with a recent bill and we can arrange quotes on a consistent basis.