What VAT rate do I pay on business electricity and gas?
Most business energy is charged at the standard 20% VAT rate. You pay the reduced 5% rate on small amounts (up to 33 kWh a day of electricity or 145 kWh a day of gas) or on domestic or charity non-business use, and the 60% rule applies to mixed use.
The three rates
| Use | VAT |
|---|---|
| Ordinary business use above the small-use limits | 20% |
| Small quantities (de minimis) or qualifying domestic / charity non-business use | 5% |
| Qualifying domestic / charity non-business electricity in Great Britain, 1 Oct 2026 to 30 Jun 2027 | 0% (temporary) |
The rules are in HMRC VAT Notice 701/19: fuel and power, which also gives the zero rate's end date of 30 June 2027 (HMRC first announced 31 March 2027; Budget 2026 extended it). The temporary zero rate was first explained in HMRC Revenue and Customs Brief 10 (2026).
The small-use (de minimis) limits
If your average use per premises is no more than 33 kWh a day of electricity (about 1,000 kWh a month) or 145 kWh a day of piped gas (about 4,397 kWh a month), the reduced rate applies. Details in the 33 kWh de minimis limit.
Domestic and charity use
Energy used in a home, or by a charity for non-business activities (a church hall used for worship, say), can be reduced-rated. Charity business activity, such as hiring out a hall, is standard-rated unless the small-use limits apply. See VAT for charities.
The 60% rule for mixed use
- If 60% or more of the supply is qualifying use, the whole supply is reduced-rated.
- If less than 60%, only the qualifying portion is reduced-rated and the rest is standard.
Worked example
A community hall's net electricity bill is £400 for the month, and 45% of use is non-business. Qualifying: £400 × 45% = £180 at 5% = £9. The other £220 at 20% = £44. Total VAT = £53.
If it were 65% non-business, the whole £400 would be reduced-rated: £400 × 5% = £20. (Between 1 October 2026 and 30 June 2027 the qualifying electricity would be 0%, so the 65% case would be £0, and the 45% case would be just the £44 on the business share.)
How you get the lower rate
The supplier will not apply it automatically in mixed-use cases. You usually give a signed declaration: see the reduced-rate VAT declaration. Use our VAT and CCL calculator to see the effect on a bill.
Business use stays at 20%
The temporary zero rate does not cover ordinary business use, which stays at 20%. See whether zero VAT applies to your business. Gas is unaffected by it.
Most VAT-registered businesses can reclaim the 20% as input tax, so the rate matters most to those who cannot: see reclaiming VAT.
Common mix-ups
- "My bill shows 5% but I run a business." It may be right if your use is under the small-use limits, but check, because a wrong rate can lead to a later correction.
- "Charities pay no VAT." Not quite: they pay 5% (0% on qualifying electricity in Great Britain from 1 October 2026 to 30 June 2027) on non-business use, and 20% on business activity above the limits.
- "VAT is only on the energy." VAT is charged on the whole bill including standing charges and the Climate Change Levy, which is why the CCL line matters: see how CCL affects your bill.
Gas follows the same 5% test but at the higher 145 kWh a day limit, and the temporary zero rate does not apply to it.
Next steps
- Look at the VAT line on your bill and check the rate.
- Work out your daily average use against 33 and 145 kWh.
- If you qualify, send a declaration to your supplier.
Sources
General information only. Energy prices, rules and supplier terms change; check the latest position with your supplier, Ofgem or the Energy Ombudsman before you act.