Charities and non-profits (including academy trusts, as exempt charities) should carefully examine their energy bills, as they may be eligible for a VAT reduction on energy used for qualifying purposes. This reduction lowers the VAT rate from 20% to 5%. However, energy suppliers do not automatically apply the reduced rate, so it’s essential to review your energy bills and consult with your supplier if you believe that your organisation is eligible. In addition to the VAT reduction, securing this reduced VAT rate will also exempt your organisation from the Climate Change Levy, a tax aimed at encouraging businesses to lower their carbon footprint.
What qualifies for the reduced rate:
- Charitable non-business activities: includes where no charge is made for products or services offered by the organisation such as providing free daycare for disabled individuals.
- Residential Accommodation: includes facilities like hospices, care homes and children’s homes.
- Small-Scale Use: applies to small quantities of energy, such as up to 1,000 kilowatt hours of electricity per month or a delivery of 2,300 litres of gas oil.
For more information about qualifying purposes, please visit GOV.UK qualifying use and for more information about business or non-business use please visit GOV.UK business or non-business.
If a charity uses less than 60% of its energy for qualifying purposes, it will pay the reduced rate on the qualifying portion, while the remaining energy will be charged at the standard rate of 20%.
How to Claim the Reduced Rate
To benefit from the reduced rate, charities must provide their energy suppliers with a certificate that confirms their eligibility. This certificate should specify the proportion of energy used for qualifying activities.
If you are eligible for exemptions or rebates, you’ll need to complete a VAT Declaration form, which can be obtained from your supplier. It’s also worth noting that overpayments can be claimed back for up to four years.
