VAT on business electricity and gas

VAT is one of the larger lines on a business energy bill, and the rate depends on how much energy a site uses and what it is used for. This guide covers the rates, who qualifies for less, the temporary zero rate on electricity that starts on 1 October 2026, and how to reclaim VAT if you are registered.

What is the VAT rate on business electricity and gas?

Most businesses pay VAT at the standard rate of 20% on electricity and gas. A lower rate applies only to supplies HMRC treats as “qualifying use”: low-usage (de minimis) supplies, domestic use, and a charity’s non-business use.

The rules are set out in HMRC’s VAT Notice 701/19, which was last updated on 8 September 2026 to add the temporary zero rate.

Type of supply	Electricity, Great Britain	Electricity, Northern Ireland	Gas
Normal business use	20%	20%	20%
Qualifying use, up to 30 September 2026	5%	5%	5%
Qualifying use, 1 October 2026 to 31 March 2027	0%	5%	5%

What is the de minimis threshold for the reduced rate?

If a site uses only a small amount of energy, the supplier charges the reduced rate whatever the energy is used for. HMRC calls these de minimis supplies. The limits are:

• Electricity: an average of no more than 33 kWh a day, or 1,000 kWh a month.
• Gas: an average of no more than 145 kWh a day (5 therms), or 4,397 kWh a month (150 therms).

The test applies to supplies “to one customer at any one of the customer’s premises”, so each site is looked at on its own. A business with a large head office and a small kiosk elsewhere could see the kiosk qualify even though the head office does not. Electricity and gas have separate thresholds.

You don’t need to send a certificate for de minimis supplies. HMRC says suppliers do not need one to apply the reduced rate to them.

Example (illustrative figures): a small shop uses 800 kWh of electricity in a month and its bill before VAT is £240. That is under 1,000 kWh a month, so the supply is de minimis. At 20% the VAT would be £48; at the 5% reduced rate it is £12; during the temporary zero rate it is £0.

Do charities pay 20% VAT on energy?

Charities pay the reduced rate on energy used for their non-business activities, and the standard rate on energy used for business activities. HMRC says that where a charity does not make a charge for an activity, that activity is generally non-business.

Energy used for activities the charity charges for is usually business use and is standard-rated. Where one supply covers both, the mixed-use rules below apply.

To get the reduced rate for charity non-business use, the charity gives its supplier a certificate (see below).

How does the 60% rule work for mixed use?

If 60% or more of the energy supplied to a premises is for qualifying use, the whole supply is charged at the reduced rate. HMRC’s wording is that “you should treat the whole supply as for qualifying use”.

If qualifying use is below 60%, the supply is apportioned: the reduced rate applies to the qualifying part and 20% to the rest.

Domestic use includes dwellings, caravans and certain residential accommodation such as care homes and hostels. HMRC notes that hospitals and prisons do not count as residential accommodation for this purpose.

Example (illustrative figures): a pub has a landlord’s flat on the same meter. If the flat accounts for 30% of the electricity, the supply is apportioned: 30% at the reduced rate and 70% at 20%. If the flat accounted for 60% or more, the whole supply would get the reduced rate.

What is the temporary zero rate on electricity?

From 1 October 2026 to 31 March 2027, qualifying supplies of electricity in Great Britain are zero-rated, so they carry 0% VAT instead of 5%. The government announced the change on 21 July 2026 and HMRC published guidance on 8 September 2026.

Which supplies qualify has not changed. HMRC says “There are no changes to the supplies of electricity that qualify for relief.” The policy paper explains that the zero-rated supplies are described in the same way as the current reduced-rate supplies, and that de minimis supplies are deemed to be domestic use.

In practice that means:

• Low-usage business electricity (de minimis) in England, Scotland and Wales gets 0% for the six months.
• Charity non-business and domestic use gets 0%.
• Normal business electricity stays at 20%.
• Northern Ireland: qualifying electricity stays at 5%.
• Gas is not affected. Qualifying gas stays at 5%.

If a bill covers a period that includes 1 October 2026, HMRC says suppliers may work out the VAT based on when the energy was used, and it recommends using meter readings to split the bill. Taking a meter reading on or close to 1 October 2026, and again on 31 March 2027, helps your supplier get the split right.

How do you claim the reduced rate from your supplier?

It depends on why you qualify.

Low-usage sites

Your supplier should apply the reduced rate (or the zero rate for GB electricity during the relief period) automatically. No certificate is needed. Check your bills show the right rate.

Charity, domestic or mixed use

Your supplier should get a certificate from you stating what percentage of the energy supplied to each premises is, or will be, for qualifying use. HMRC does not publish a model certificate, but it says the certificate should include:

• the supplier’s and customer’s details
• the address of the premises
• the percentage of qualifying use
• a declaration signed and dated by a responsible officer or official, confirming they understand the obligations and will tell the supplier about changes

Ask your supplier for its own form. HMRC warns that “Anyone providing an incorrect certificate may be liable to a financial penalty”, so keep records that support the percentage you declare and update the supplier if your use changes.

The same VAT certificate is used to claim relief from the Climate Change Levy for domestic and charity non-business use. See our Climate Change Levy guide.

Can you reclaim VAT on business energy?

If your business is VAT-registered, you can reclaim VAT on energy you buy for use in the business, provided you have valid VAT invoices. You reclaim it through your VAT return in the same way as other business costs.

If some of the energy is for private use, you can only reclaim the business proportion. GOV.UK gives the example of someone working from home whose office takes up 20% of the floor space: they can reclaim 20% of the VAT on their utility bills.

If you are not VAT-registered, the VAT on your energy is a real cost, so it is worth checking whether any of your sites qualify for the reduced or zero rate. An accountant can confirm how the rules apply to your business.

What should you check on your bill?

• The VAT rate on each site. A low-usage site should show the reduced rate, or 0% for GB electricity between 1 October 2026 and 31 March 2027.
• Bills that span 1 October 2026. Look for the usage split between the two rates.
• The Climate Change Levy line. Supplies for domestic or charity non-business use, and de minimis supplies, are excluded from CCL.
• Your certificate is on file. If you sent one, the percentage on your bill should match it.

Our guide on how to read a business energy bill explains where each charge appears, and our business energy prices page shows current average prices before VAT.

Frequently asked questions