Care home business energy

A care home buys energy on a business contract, but part of what it pays is treated more like household energy for tax. HMRC lists homes providing care for the elderly or disabled as qualifying residential accommodation, which opens the door to reduced VAT, and the temporary 0% VAT on electricity in Great Britain can apply too. Getting the paperwork right is often worth more than haggling over the unit rate.

Why care homes use so much energy

A care home is a building that people live in 24 hours a day, often with higher heating needs, lots of laundry, a commercial kitchen, hot water for personal care, call systems, lifts and sometimes medical equipment. Demand is steady rather than peaky, which is helpful when you compare tariffs, but it also means there is no quiet period to save in. Electricity and gas bills can both run to tens of thousands of pounds a year for even a modest home.

The big tax point: reduced VAT for residential use

HMRC's VAT notice on fuel and power (Notice 701/19) says the reduced rate applies when fuel and power is for a dwelling or a qualifying type of residential accommodation. The list includes homes providing care for the elderly or disabled (including people with past or present drug or alcohol dependence or mental disorder), children's homes and hospices. Hospitals, prisons and similar establishments, and hotels, are not on the list.

Standard business supplies carry 20% VAT. Qualifying supplies carry 5%. From 1 October 2026 to 30 June 2027, qualifying domestic and charity non-business electricity in Great Britain is temporarily zero-rated (0%), reverting to 5% afterwards. HMRC first announced an end date of 31 March 2027; Budget 2026 extended it, as reflected in HMRC VAT Notice 701/19: fuel and power. Gas stays at 5%. Northern Ireland stays at 5%.

Do not assume your supplier has applied the lower rate. The supplier normally needs a declaration from you, and if it is not on file they may charge 20%. Check the VAT line on your latest bill.

A worked example

Imagine a 30-bed care home using 120,000 kWh of electricity a year. Using the small-business average fixed electricity rate of 27.2p/kWh plus a 118.9p/day standing charge (Moneysupermarket Business, 21 October 2026, indicative only):

Item	Sum	Amount
Units	120,000 × £0.272	£32,640.00
Standing charge	365 × £1.189	£433.99
Net charge		£33,073.99
VAT at 20% (wrongly applied)	£33,073.99 × 0.20	£6,614.80
VAT at 5% (qualifying)	£33,073.99 × 0.05	£1,653.70
Difference over a year	£6,614.80 − £1,653.70	£4,961.10

While the temporary zero rate applies (to 30 June 2027), VAT on the qualifying electricity would be £0, so a bill wrongly charged at 20% would overcharge you the full VAT amount for that period. Gas stays at 5%.

If a bill has been charged at 20% when you qualified, you can ask your supplier to correct it. Our page on reduced-rate VAT declarations explains how the declaration works, and can a care home get reduced VAT on energy? answers the question in short.

What if only part of the building is residential?

Many homes have offices, a staff area, a day centre or a rented-out unit on the same meter. HMRC's 60% rule applies. If 60% or more of the supply is for qualifying residential use, the whole supply is reduced-rated. If it is under 60%, only the qualifying share is. HMRC expects a certificate stating the exact percentage, with a separate certificate for each premises.

Example: net electricity charges of £10,000 with 45% residential use. VAT is (£4,500 × 5%) + (£5,500 × 20%) = £225 + £1,100 = £1,325. At 65% residential, the whole £10,000 is reduced-rated, so VAT is £500. The step at 60% is large, so measure the split honestly and record how you did it.

Climate Change Levy

Climate Change Levy (CCL) is a tax on business energy, 0.801p/kWh from 1 April 2026 and 0.827p/kWh from 1 April 2027. GOV.UK's guidance on CCL exemptions says supplies for domestic use and for charities' non-business use are excluded, as are small supplies below 1,000 kWh a month of electricity or 4,397 kWh a month of gas, and the same 60% rule applies to mixed premises. Because HMRC treats qualifying residential accommodation as domestic use for these reliefs, the qualifying residential part of a care home should not pay CCL. Ask your supplier to confirm in writing which part of your usage it treats as levy-free, and keep your supporting certificate. On 120,000 kWh, the levy would otherwise be 120,000 × £0.00801 = £961.20 a year, so it is worth checking. See climate change levy and who is exempt from CCL.

Are you a micro or small business?

Many care homes are small businesses: under 50 employees and turnover up to £6.5m, or electricity up to 200,000 kWh, or gas up to 500,000 kWh. Some are microbusinesses. This matters because small and micro businesses can use the Energy Ombudsman, and microbusinesses get extra protection on rollovers, notice and back-billing. Larger group operators with many sites usually fall outside both and should read our guide on multi-site and large business energy.

Contract choices

Because care homes cannot easily reduce use, price certainty is attractive. A fixed contract locks the unit rate, but beware of two traps. First, check whether non-energy network charges are fixed or passed through (see pass-through versus fixed charges). Second, a home that closes, changes ownership or merges sites could be stuck with a contract for premises it no longer runs; read the exit terms before you sign. If your contract runs out unnoticed you can be moved to a pricier default rate; our guide to getting off out-of-contract rates shows the way out.

Ask for a quote with and without the broker's fee shown. Since 1 October 2024 broker costs have to appear in the Principal Terms of every non-domestic contract, so you can compare like with like.

Reducing use safely

Resident comfort and safety come first, so focus on things that residents do not feel: LED lighting, boiler and pipework insulation, laundry scheduling, and checking that heating zones match how rooms are used. A survey of your site by an independent adviser can prioritise measures; see business energy audits. We cannot promise a saving figure, as it depends on the building and equipment.

Next steps

1. Look at your latest bill: which VAT rate and CCL line appear?
2. If you qualify and are being charged 20%, send your supplier a VAT declaration and ask for a corrected bill.
3. Record the residential percentage for each premises and keep the working.
4. Diary your contract end date and ask for renewal quotes well ahead of it.