Does a church qualify for reduced VAT on energy?

How the rule works

HMRC's fuel and power notice gives the reduced 5% rate to charities for non-business use and says that if a charity makes no charge, its activities are generally non-business. A church that holds services and community activities free of charge usually fits this. Where the building is also let out for a fee, that part is normally business use at 20%. If a hall is let only for a nominal sum, HMRC says such supplies are normally treated as non-business, so check how your charges are set.

HMRC's notice does not discuss churches by name. The relief is framed around charities, so if your church is not a charity, or you are unsure of its status, confirm the position with HMRC or a tax adviser before signing a declaration.

The 60% rule

• 60% or more qualifying use: the whole supply is at the reduced rate.
• Under 60%: only the qualifying share is reduced; the rest is at 20%.

Worked example

A church hall's electricity is £1,000 net of VAT a year. It is used 55% for free worship and groups, and 45% for paid hire.

• 55% is below 60%, so the split applies.
• Qualifying part: £550 × 5% = £27.50.
• Business part: £450 × 20% = £90.00.
• Total VAT: £117.50.

If qualifying use rose to 60%, the whole £1,000 would be at 5%: £50 VAT, saving £67.50. Under the temporary zero rate for qualifying GB electricity, which runs from 1 October 2026 to 30 June 2027 (HMRC first announced an end date of 31 March 2027; Budget 2026 extended it), the qualifying £550 would carry £0 VAT in the first case, so the total becomes £90.00.

Evidence and the declaration

For mixed use you give the supplier a signed declaration for each premises with the exact qualifying percentage, and tell them if it changes. Base the number on something you can show: a timetable of hours, a sub-meter or a floor-area split. Keep your working. See reduced-rate VAT declarations.

Small supplies also qualify for 5%: up to 1,000 kWh of electricity a month or 4,397 kWh of gas a month per premises. See the de minimis limit.

Other energy points for churches

• Places of worship are exempt from the requirement to have an EPC when sold or let. See EPC rules.
• Heating a large building used a few hours a week is often the biggest cost. Timers and zoning help; see heating efficiency.
• A church that is not a charity should ask a tax adviser about its VAT position.

Keeping the evidence

Because suppliers must make reasonable checks, it helps to keep a short note explaining how you reached your percentage. A weekly timetable showing hours of worship and free community use against paid lettings is usually enough, and a sub-meter on a separately let hall makes the split exact. Review the figure each year, and tell the supplier if you start or stop regular hiring. Where the building also includes a vicarage or other residence, ask whether that part has its own supply and rate.

Next steps

1. Calculate your qualifying percentage.
2. Send the declaration to your supplier.
3. Read our church and community building energy guide.
4. Compare quotes: comparing business energy.

Biz Energy is independent and not affiliated with any supplier, broker or comparison site, and takes no commission. This is general information, not legal, tax or financial advice.