Reduced-rate VAT declaration for business energy: how to claim 5%

The short version

VAT on business energy is 20% unless a reduced rate applies. You can pay 5% if the energy is for qualifying use: domestic use or charity non-business use, or if your supply is below the de minimis limits. Some cases need no paperwork. Mixed-use cases need a signed certificate from you, and your supplier must make reasonable checks before applying the lower rate. The rules come from HMRC's VAT Notice 701/19.

When you do not need a certificate

If your supply is small enough to count as de minimis, HMRC says you do not need a certificate to have the reduced rate applied. The limits are:

• Electricity: an average of 33 kWh a day, roughly 1,000 kWh a month.
• Piped gas: an average of 145 kWh a day, roughly 4,397 kWh a month (about 150 therms).

The test is per customer at each premises. Over a year, 33 kWh a day is 33 × 365 = 12,045 kWh of electricity, and 145 kWh a day is 145 × 365 = 52,925 kWh of gas. See what is the 33 kWh de minimis limit and the de minimis glossary entry. EV charging at public or workplace chargers is excluded from the relief.

A tiny office using 9,000 kWh a year averages 9,000 ÷ 365 = 24.7 kWh a day, which is under 33, so it should see 5% on that fuel. A shop using 20,000 kWh averages 54.8 kWh a day, which is over the limit, so 20% applies unless part of the use is qualifying.

When you do need a certificate

A certificate is needed for mixed-use supplies, where one meter serves both qualifying use and business use. Typical cases:

• A shop, pub or café with a flat upstairs on the same meter.
• A charity building where some activity is non-business and some is trading.
• A building with residential and commercial parts, where you work out the qualifying share.

Qualifying use covers genuine domestic use in a dwelling or eligible residential accommodation, and charity use where no charge is made for the activity. HMRC lists houses, flats, caravans, houseboats, hospices, student accommodation and self-catering holiday accommodation as eligible, while hospitals, prisons and hotels are not treated as residential accommodation for this purpose. See what VAT charities pay on energy.

What the certificate must contain

HMRC's notice lists what it must contain, but does not publish a fixed form, so suppliers often provide their own template. The certificate should show:

1. the names and addresses of both you and the supplier;
2. your VAT number;
3. the address of the premises it relates to;
4. the exact percentage of the supply that is for qualifying use;
5. a signed declaration by a responsible officer, with their name, position and date;
6. confirmation that you will tell the supplier if the qualifying use changes.

You need a separate certificate for each supply to separate premises. Keep a copy, plus the working-out behind the percentage, such as floor areas, appliance lists or sub-meter readings. If you have more than one site, see multiple sites for how to organise the paperwork.

The 60% rule

Whether the whole bill or only part of it gets the reduced rate depends on the share of qualifying use:

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

Worked example

An illustrative case: a shopkeeper trades from the ground floor and lives above it on one electricity meter. The shop is the business, and the family accommodation is domestic use. The owner estimates the flat uses 40% of the electricity. The annual bill before VAT is £6,000.

• 40% is under 60%, so the supply is split.
• Qualifying share: £6,000 × 0.40 = £2,400. VAT at 5% = £120.
• Business share: £6,000 × 0.60 = £3,600. VAT at 20% = £720.
• Total VAT: £840, compared with £1,200 if everything were at 20%, so the declaration saves £360 a year.

If the flat's share were 65%, the whole £6,000 would carry 5% VAT of £300. The percentage in the certificate matters, so base it on evidence and keep the working. From 1 October 2026 to 30 June 2027, qualifying electricity in Great Britain is zero-rated instead of 5% (HMRC first announced 31 March 2027, then extended it); gas stays at 5%. In this example the flat's £2,400 share would carry no VAT in that period, so total VAT would be £720. See the zero-rate VAT guide for the dates.

What your supplier does with it

HMRC says suppliers must make reasonable checks, which can mean asking for your calculations or schedules, and must do so within a reasonable time if they take over an existing customer. If checks are not done, the full 20% rate could be charged. That is why a new supplier might ask for the certificate again when you switch. Send the new supplier a fresh copy as part of your switch, or at the latest on request. Our switching guide includes the paperwork you may be asked for.

Mistakes to avoid

• Guessing the percentage. HMRC warns that anyone giving an incorrect certificate may face a financial penalty, and the supplier may have to recover undercharged VAT.
• Not updating. If the flat is let out, a charity starts trading from the hall or the building changes use, tell the supplier. The certificate includes a promise to do so.
• Using one certificate for several sites. You need one per premises.
• Mixing up VAT and CCL. They are separate taxes with separate rules. Read VAT and the Climate Change Levy.

If you were charged the wrong rate

Ask the supplier for a corrected bill and refund, giving your certificate and evidence. If it is not resolved, follow the supplier's complaints process, then the Energy Ombudsman if you are a micro or small business, after eight weeks or a deadlock letter. See energy disputes and the Ombudsman.

Next steps

1. Work out your daily average kWh to see whether you are under the de minimis limits.
2. If mixed use, calculate the qualifying percentage with evidence.
3. Draft the certificate with every item above and sign it as a responsible officer.
4. Send it to your supplier and keep a copy. Diarise a yearly review.