Can I reclaim VAT on business energy?

The basic rule

A VAT-registered business can reclaim VAT on items bought for business use through its VAT return, as long as it holds a valid VAT invoice (GOV.UK: reclaim VAT on business expenses). Business electricity and gas are no different. Your bill is the invoice.

Who cannot

• Businesses not registered for VAT (typically below the registration threshold) have nothing to reclaim; the VAT is simply part of their cost.
• Flat Rate Scheme users generally cannot reclaim VAT on purchases, apart from certain capital assets over £2,000.
• VAT on costs used only for VAT-exempt supplies cannot be reclaimed, and "partly exempt" businesses follow special rules.

Mixed use

Only the business proportion can be reclaimed, and you must keep records showing how you worked it out. If your supply serves both a business and a home, the supplier may apply different VAT rates to each part, and you reclaim only VAT on the business part.

Worked example

A shop with a flat above has a net electricity bill of £400, with 25% domestic use. As less than 60% is domestic, the supplier splits it: £300 at 20% = £60 VAT; £100 at 5% = £5 VAT. Total VAT £65. The shop reclaims the £60 business VAT; the £5 on the domestic share is not reclaimable. Over a year of identical bills (×12) that is £720 reclaimed. See how the VAT rate is decided.

A straightforward case

An office pays £800 net plus £160 VAT, £960 in total. Registered for VAT, it reclaims £160, so the real cost is £800.

Do not confuse reclaiming with reducing

• Reclaiming is something you do on your VAT return after paying.
• The reduced rate means you are charged less VAT at source (small use, charity or domestic). See the declaration.
• The Climate Change Levy is not VAT. HMRC's fuel and power notice says the value a supplier charges VAT on includes CCL, so VAT is added on top of it. Only the VAT element goes on your VAT return; the levy itself is a cost, unless an exemption or a Climate Change Agreement discount applies at source. See how CCL affects your bill.

The temporary 0% rate

From 1 October 2026 to 30 June 2027, electricity in Great Britain that qualifies for the reduced rate (domestic use and charity non-business use) is zero-rated instead of 5%; HMRC first set the end date as 31 March 2027 and Budget 2026 extended it (HMRC VAT Notice 701/19: fuel and power). In the worked example above, the flat's £100 share would carry £0 VAT instead of £5 in that period. Business use stays at 20%, so the amount a registered business reclaims does not change.

If you were overcharged VAT

Ask your supplier for a corrected invoice and a credit. See refunds and credits.

For anything specific to your accounts, ask your accountant: partial exemption and charity cases are fact-dependent.

Records to keep

• Every supplier bill, kept as the VAT invoice (it should show the supplier's VAT number).
• Your working for any business/private split, such as meter readings or floor-area proportions.
• Copies of any declaration you gave the supplier.

If you reclaim VAT on bills you have not yet paid, you must repay it if they stay unpaid, so reclaim only against what you actually owe and have a plan to pay.

Next steps

1. Check you are VAT-registered and keep every bill.
2. Split any mixed-use bills with a documented basis.
3. See the full picture in VAT and Climate Change Levy.