VAT on Business Electricity for UK Businesses

The two VAT rates that apply

UK business electricity is taxed at one of two rates. Standard 20% is the default. A reduced 5% applies to a narrow set of situations covered below. There is no zero-rated category for business electricity.

If you do nothing, you will be charged 20%. The 5% rate applies to low-energy users below the de minimis threshold, to charities using electricity for non-business purposes, and in mixed-use premises where part of the supply qualifies (residential homes attached to a business is the most common example). Each one has its own paperwork and its own evidence requirement.

Are you a low-usage business

Low usage in this context has a specific meaning. Your monthly electricity consumption needs to fall below the de minimis threshold of 1,000 kWh per month, or 33 kWh per day on average. Anything below that triggers the 5% rate. Anything above gets the standard 20%.

Most suppliers calculate this on a monthly basis. A business that uses 800 kWh in February and 1,200 kWh in March would get 5% VAT on February and 20% on March. The threshold resets each billing period.

Rough usage benchmarks for typical UK businesses:

• Small office (5 staff) uses around 4,000 to 8,000 kWh a year. Monthly average 330 to 670 kWh. Consistently below the threshold, so usually gets 5% VAT.
• Small shop with refrigeration uses 10,000 to 18,000 kWh a year. Monthly 830 to 1,500 kWh. Borderline, varies month to month.
• Small cafe with kitchen uses 15,000 to 25,000 kWh a year. Monthly 1,250 to 2,080 kWh. Consistently above the threshold, gets 20%.
• Mid-sized SME uses 30,000 to 80,000 kWh a year. Monthly 2,500 to 6,670 kWh. Always 20%.

Suppliers do not always handle the de minimis threshold cleanly. If your usage is borderline and you are seeing 20% VAT every month, check your bills against actual kWh used. Common error worth catching.

How charities and non-profits qualify

Charities can pay 5% VAT on the portion of electricity used for non-business purposes. The trick is what counts as non-business. Worship spaces qualify. Community use qualifies. Trading activities run by the charity (a cafe, retail) do not, even though the same legal entity runs them.

A church pays 5% on the electricity used for the church building itself: worship, community use, shop activity below relevant thresholds. The 20% rate applies to any commercial activity it runs from the same building. A charity-run cafe within a community centre would usually be a business activity. The actual worship space is not.

Housing associations, hospices, and museums fall under the same rules. Where the activity is genuinely non-business, 5% is available. Trading activity attracts 20% even where a registered charity is doing it.

To claim the reduced rate as a charity, you fill in a VAT declaration form (sometimes called a VAT certificate) and submit it to your supplier. The form asks for the percentage of electricity used for qualifying purposes. Your supplier then applies 5% to that proportion of your bill.

Mixed-use premises and other special cases

A few other situations qualify for 5% VAT.

• Residential parts of a property. A pub with a flat above where the landlord lives. A care home. A small B&B. The residential portion qualifies for 5% on its share of the electricity. You declare the proportion to your supplier.
• Agricultural use. Electricity used directly in agricultural production qualifies for 5% in some cases. The rules are detailed and worth checking with your accountant before claiming.
• Charitable buildings used solely for non-business purposes. Village halls, scout huts, community centres operated as registered charities and not used for trading. These qualify for 5% across the whole supply.

In each case the mechanic is the same. You complete a declaration form, send it to your supplier, and they apply 5% to the qualifying proportion. The supplier does not make the decision for you. They take your declaration in good faith. If HMRC later finds the declaration wrong, the responsibility sits with you, not the supplier.

Reclaiming overpaid VAT

If you have been overpaying VAT, you can claim a refund. Suppliers will usually go back four years. You will need a backdated VAT declaration covering the period, evidence of qualifying use (charity registration, residential proportion, usage data), and a formal request to the supplier in writing.

The refund typically comes through as a credit on your account or a payment back. Do not assume it is automatic. Suppliers do not volunteer refunds. You have to ask.

For a business that is not VAT-registered, dropping from 20% to 5% on a £6,000 annual electricity bill saves £900 a year. Worth the paperwork.

How CCL and VAT interact

CCL is a separate environmental tax charged on most business electricity at 0.775p per kWh (April 2026 rate). VAT is then charged on the total bill including CCL.

Some businesses are exempt from CCL too. Charities using electricity for non-business purposes do not pay it. Energy-intensive industries with a Climate Change Agreement get a reduced rate. Low-energy users on the de minimis threshold also avoid it.

The same threshold that gives you 5% VAT usually gets you out of CCL as well. Our guide to the Climate Change Levy covers the detail. For the broader picture of how all the levies and charges fit onto a bill, see how business energy bills are calculated (the same components apply to electricity).

VAT and standing charges

VAT is charged on the total of unit rates plus standing charges plus any pass-through charges. The same VAT rate applies to all of it. Qualify for 5% and it covers your standing charge as well as your unit rate.

This matters more for low-usage premises where the standing charge is a bigger share of the bill. A holiday let with low usage and a 40p daily standing charge would pay £146 in standing charges for the year. At 5% VAT that is £7.30. At 20% VAT that is £29.20. The difference compounds across multiple sites. For the deeper view on what standing charges cover and why they have risen so sharply, see our guide to business energy standing charges.

If you are VAT-registered, you can reclaim the input VAT on your electricity bills as part of your normal VAT return. The 5% versus 20% question still matters because cash flow is different, and because plenty of small businesses are below the VAT registration threshold.

Frequently asked questions

What is the de minimis threshold for business electricity VAT?
1,000 kWh per month, or 33 kWh per day on average. Below that, 5% VAT applies. Above it, 20%.

Do I have to apply for the 5% rate or is it automatic?
For low-usage cases under the de minimis threshold, your supplier should apply it automatically based on your meter readings. For charity, residential, and agricultural cases, you need to submit a VAT declaration to your supplier.

Can I claim back overpaid VAT from previous years?
Yes. Most suppliers will backdate up to four years. You will need a VAT declaration covering the period and evidence supporting the claim.

Does VAT change if I switch supplier?
The VAT rate that applies to you is set by HMRC rules, not your supplier. Switching does not change which rate applies, but you may need to submit a fresh declaration to your new supplier. Our switching guide walks through the rest of the process.

Is the 5% rate applied per supply or per business?
Per supply. If your business has multiple sites, each one is assessed individually for the de minimis threshold. A multi-site business might have 5% on some sites and 20% on others.