VAT and the Climate Change Levy on business energy

The quick version

• VAT: 20% on most business energy. 5% for small amounts (the de minimis limits) or for qualifying domestic or charity non-business use. From 1 October 2026 to 30 June 2027 a temporary 0% rate applies to qualifying electricity in Great Britain, but standard business use stays at 20%.
• CCL: 0.801p/kWh from 1 April 2026 and 0.827p/kWh from 1 April 2027, the same for electricity and gas. Small users and some sectors pay none or less.

Neither tax is the same as the supplier's price. Both are added to your bill, and VAT is charged on the CCL as well.

Climate Change Levy: rates and who pays

The Climate Change Levy is a tax on energy used by businesses and the public sector. It is charged per kWh of electricity and gas, and listed as a separate line on your bill. GOV.UK sets the main rate at:

Period	Main rate (electricity and gas)
1 April 2025 to 31 March 2026	0.775p/kWh
1 April 2026 to 31 March 2027	0.801p/kWh
From 1 April 2027	0.827p/kWh

Who pays less or nothing

• Very small users. A de minimis exemption covers supplies of under 1,000 kWh a month of electricity and 4,397 kWh a month of gas. GOV.UK treats these supplies as domestic, so they are excluded from the levy. See de minimis.
• Domestic and charity non-business use. Fuel used for these purposes is generally outside CCL. See who is exempt from the Climate Change Levy.
• Climate change agreement holders. Eligible sites that meet energy-efficiency targets pay a reduced rate: GOV.UK lists discounts of 92% on electricity and 89% on gas. See climate change agreements.

Most small businesses simply pay the main rate. For a deeper look at how it hits your bill, read how the Climate Change Levy affects my bill.

VAT: 20% or 5%

HMRC's VAT Notice 701/19 sets the rules. The standard rate of 20% applies to business supplies. The 5% reduced rate (0% for qualifying electricity in Great Britain from 1 October 2026 to 30 June 2027) applies to:

• Small quantities (de minimis): electricity up to an average of 33 kWh a day (about 1,000 kWh a month) and piped gas up to 145 kWh a day (about 4,397 kWh a month), for each customer at each premises.
• Domestic use: for example, a flat above a shop that shares the meter.
• Charity non-business use: for example, a community hall used free of charge for the charity's purposes.

Public and workplace electric vehicle chargers are excluded from the de minimis relief.

The 60% rule

If 60% or more of a supply is for qualifying use, the whole supply is charged at the reduced rate. If it is under 60%, only the qualifying share is reduced and the rest is charged at 20%. You tell your supplier the percentage in a signed certificate; see the reduced-rate VAT declaration guide.

Temporary 0% VAT on electricity from October 2026

From 1 October 2026 the Government introduced a temporary zero rate of VAT on qualifying electricity in Great Britain. It applies to the same supplies that normally get the 5% rate: domestic use and charity non-business use. Northern Ireland stays at 5%, and gas is unchanged.

It does not cut VAT on ordinary business electricity, which stays at 20%. The zero rate runs from 1 October 2026 to 30 June 2027. HMRC first announced an end date of 31 March 2027; HMRC VAT Notice 701/19: fuel and power, updated on 28 October 2026, says Budget 2026 extended it by three months. Because de minimis supplies count as qualifying use, a business using no more than 33 kWh a day of electricity in Great Britain also gets 0% in that period. Our guide on zero-rate VAT on electricity for businesses explains who benefits, and does zero VAT apply to my business answers the common question.

Worked example: a café's bill

A café uses 30,000 kWh of electricity a year at 25p/kWh with a 60p/day standing charge. All use is business use, so VAT is 20%.

Line	Sum	Amount
Units	30,000 × £0.25	£7,500.00
Standing charge	365 × £0.60	£219.00
CCL (2026-27)	30,000 × £0.00801	£240.30
Net total		£7,959.30
VAT at 20%	£7,959.30 × 0.20	£1,591.86
Total		£9,551.16

The CCL adds about 3% to the pre-tax cost here, and VAT adds a further 20%. Try your own numbers in the VAT and CCL calculator.

A mixed-use example

A pub uses 20,000 kWh at 25p/kWh (£5,000 before VAT, ignoring standing charges and CCL) and the flat upstairs accounts for 55% of use. That is under 60%, so the supply is split: 55% × £5,000 = £2,750 at 5% (£137.50) and 45% × £5,000 = £2,250 at 20% (£450). VAT is £587.50. If the flat were 65% of use, the whole £5,000 would be at 5%: £250, a difference of £337.50. While the temporary zero rate applies to electricity (1 October 2026 to 30 June 2027), the reduced-rate share carries 0% instead: £450 VAT in the 55% case and nil in the 65% case.

Can you reclaim the VAT?

If you are VAT-registered and the energy is for your taxable business, the VAT on your bill is generally input tax you can reclaim in your VAT return. It is a cash-flow cost, not a final cost. CCL is not recoverable, though VAT on it is. If you are not VAT-registered, you bear it. See can I reclaim VAT on business energy and which VAT rate applies.

Common mistakes

• Assuming the quote includes tax. Business prices are often quoted before CCL and VAT. Ask.
• Assuming a small business gets 5%. The reduced rate depends on how much and for what you use the energy, not on your size or turnover.
• Not telling the supplier about a change. If your qualifying use changes, you must let them know. If the reduced rate was applied wrongly, HMRC's notice says you may have to pay VAT that was undercharged.
• Treating CCL as optional. It is a line on every standard business bill. If it is missing, ask why, rather than assuming you are exempt.
• Confusing the zero rate with a business discount. The temporary 0% rate is aimed at domestic and charity non-business use. It is not a general cut for shops, offices or pubs.

How to check your bill

1. Find the VAT rate and the amount charged on the bill.
2. Find the CCL line. Multiply your kWh by 0.801p to check it.
3. If you think you qualify for 5% or for CCL relief, ask your supplier what they need from you.
4. If you were charged the wrong rate, ask for a corrected bill, and see disputing a high bill.

Next steps

• Check your annual kWh against the de minimis limits.
• If part of your premises is a home or charity use, work out the percentage.
• Ask your supplier for the right certificate and keep a copy.