Charity business energy: reduced VAT and what to check

Charities can pay less VAT on energy than ordinary businesses, but only for the right kind of use, and only if the supplier knows. This guide explains what counts as non-business use, how the VAT rates apply (including the temporary zero rate this winter), and what charities should check on their contracts.

The key idea: business use vs non-business use

For fuel and power VAT, HMRC distinguishes between a charity's non-business activities and its business activities. The reduced rate of 5% VAT applies to energy used by a charity for non-business purposes, in the same way it applies to household use. HMRC's notice says activities supplied for payment are normally business, so energy used for trading, such as a charity shop selling goods or a commercial café, is normally charged at the standard 20% rate.

Typical non-business use: a village hall used for community activities, a church or place of worship used for services, an office delivering free services, a hostel, a day centre. Typical business use: a charity shop, a trading arm, a hall hired out commercially. The notice says a charity that makes no charge for an activity is generally acting non-business. The exact line for your activities depends on how they are classified (HMRC's general charity VAT guidance covers this), so if you are unsure, ask HMRC or a VAT adviser.

What rate applies?

Use	VAT rate
Business use (e.g. charity shop trading)	20%
Charity non-business use	5%
Charity non-business electricity, Great Britain, 1 Oct 2026 to 30 Jun 2027	0% (temporary)
Very small supply (up to 33 kWh a day electricity or 145 kWh a day gas)	5%

The temporary zero rate was announced in July 2026 to run to 31 March 2027; Budget 2026 extended it to 30 June 2027, as HMRC VAT Notice 701/19 (updated 28 October 2026) now states. It covers qualifying domestic and charity non-business electricity in Great Britain, with the same eligibility rules as the existing 5% relief. It does not apply to gas, and Northern Ireland stays at 5%. After 30 June 2027, the electricity rate returns to 5%.

Mixed use and the 60% rule

Many charity buildings do both. A church that also has a trading café, or a community centre that runs commercial lets, has mixed use. HMRC's rule:

• If 60% or more of the supply is for qualifying non-business use, the entire supply is reduced-rated.
• If it is less than 60%, only the qualifying portion gets the reduced rate and the rest is charged at 20%.

Worked example: a village hall

A hall uses 20,000 kWh of electricity a year at an illustrative 27p/kWh with a 60p/day standing charge. Energy 20,000 × £0.27 = £5,400.00; standing charge 365 × £0.60 = £219.00; subtotal £5,619.00 before VAT.

• As a business (20%): VAT £1,123.80, total £6,742.80.
• As wholly charity non-business use (5%): VAT £280.95, total £5,899.95.
• Same, 1 Oct 2026 to 30 Jun 2027 (0%): VAT £0.00, total £5,619.00.

The difference between the first and second lines is £842.85 a year, which is why declaring the right use matters. If the hall is used 65% for community events and 35% for paid commercial lets, 65% is over the 60% threshold and the whole supply is reduced-rated. At 50/50, only half is. Our VAT and CCL calculator shows the maths with your numbers.

You do not get the reduced rate automatically. Tell your supplier and complete any declaration it asks for. If the supplier has charged 20% by mistake, ask it to correct the bill; see the reduced-rate declaration guide.

Climate Change Levy

The main rate of the levy is 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 a charity's non-business use are excluded from the levy, as are very small supplies (under 1,000 kWh a month of electricity or 4,397 kWh a month of piped gas). The same 60% approach applies to mixed premises. Your supplier will need a declaration to stop charging it, so ask what form it uses. Our guide to who is exempt from the Climate Change Levy goes through the possibilities.

Contracts and protections for charities

Most small charities will be microbusinesses for energy purposes, so you get clear Principal Terms, limits on rollovers and notice, and access to the Energy Ombudsman if a complaint cannot be settled with the supplier. Charities are not covered by a separate regulated price cap, and there is no general government support scheme for non-domestic energy bills in 2026. If you are struggling, see what to do if you can't pay and government help.

If your premises are rented, ask whether the landlord sub-meters you. A landlord reselling energy to you may not charge more than it pays. See church and community building energy for places of worship and halls.

Cutting costs

• Match heating times to when the building is occupied; many halls are heated all day for a few hours of use.
• Fit LED lighting. See LED lighting for business.
• Check for grants and loans; see grants and loans.

Common mistakes charities make

Assuming the charity status is enough

Registered charity status does not by itself reduce VAT on energy. It is the use of the energy that counts. A charity office that only delivers free services is a good candidate; a charity-run restaurant is not.

Never telling the supplier

Suppliers charge 20% unless told otherwise. If you have been paying 20% on energy that qualified for 5%, ask the supplier how far back it will correct. Do not assume the whole history will be refunded; the supplier's terms and the rules on correcting VAT decide.

Missing the 30 June 2027 date

The zero rate is temporary. Budgets built on 0% VAT on electricity will rise when the rate goes back to 5%. For a hall with a pre-VAT electricity bill of £5,619.00 a year, that is £280.95 extra over a full year. Plan ahead.

Ignoring the lease

If you rent the building, check who holds the energy contract and whether the charge to you is fair. Our guide to what VAT charities pay on energy answers the narrower question in a few lines.

Next steps

1. Work out the share of use that is non-business.
2. Check which VAT rate your latest bill shows.
3. Send your supplier the declaration it needs.
4. Diary the end of the zero rate on 30 June 2027, as electricity returns to 5% from 1 July 2027.

Keep a short written note of how you worked out your non-business share. If your supplier or HMRC ever asks, you can show the method.