Reduced rate VAT on business energy

The rule: standard rate unless the use qualifies

HMRC's VAT Notice 701/19 sets out how VAT applies to fuel and power. Business energy is charged at the standard rate unless it is for a qualifying use. Qualifying use means:

• Domestic use: energy used in homes and certain residential accommodation. Hotels, inns and similar establishments are not domestic use.
• Charity non-business use: energy a charity uses for activities it does not charge for.
• De minimis supplies: small supplies that are treated as domestic even when the customer is a business.
• Mixed use with 60% or more qualifying: the whole supply is treated as qualifying.

Qualifying-use gas is charged at the reduced rate. Qualifying-use electricity is zero-rated in Great Britain from 1 October 2026 to 30 June 2027 under a temporary measure, explained below.

This page covers who qualifies for the lower rate and how to claim it. If your question is simply which VAT rate applies to ordinary business energy, our sister site covers that alongside business energy comparison.

De minimis: small supplies

If your supply is small enough, it is treated as domestic and gets the lower rate automatically, even if you are a business. The limits apply per customer, at any one of the customer's premises:

HMRC says the limits apply whether the bill is based on a meter reading by the supplier or the customer, or on an estimate. You do not need a certificate for de minimis supplies: the supplier applies the lower rate when your consumption is within the limits.

De minimis typically helps small shops, kiosks, lock-ups, small offices and other low-use sites. If your use is near a limit, a few busy months can take a bill over it, so check each bill.

Electric vehicle charging is treated differently. Electricity supplied through a publicly accessible or workplace electric vehicle charging point does not count as de minimis whatever the quantity, and from 1 November 2026 the legislation provides that such a supply is not for domestic use. A charity using it for non-business purposes may still qualify.

Charity non-business use

If a charity does not charge for an activity, that activity is generally non-business, and energy used for it qualifies for the lower rate. Examples include advice services a charity provides without charge, or its own administration that supports non-business work.

Many charities also have business activities, such as selling donated goods, running a café or hiring out rooms. Energy used for those is standard-rated unless the supply is within the de minimis limits. Where business and non-business activities share the same premises, the supply may need to be apportioned using the mixed-use rule below.

HMRC's guides on VAT for charities (VAT Notice 701/1) and the general VAT guide (VAT Notice 700) explain how to tell business from non-business activities. The same idea of charity non-business use also takes energy outside the Climate Change Levy.

Mixed use: the 60% rule

Many premises are used for more than one purpose: a pub with a flat upstairs, a farm with a farmhouse on the same supply, a charity shop that also hosts community activities it does not charge for. HMRC's rule for mixed use is:

You need a reasonable basis for the percentage, such as floor area, separate sub-metering, hours of use or equipment ratings. Keep your workings: suppliers must make reasonable checks on VAT certificates and may ask for your calculations and supporting documents.

The same 60% test applies to the Climate Change Levy, so one well-evidenced declaration often affects both lines on the bill.

Telling your supplier: the VAT certificate

The lower rate is only applied if the supplier knows. For mixed use, HMRC says the supplier should obtain a certificate from you declaring what percentage of the energy supplied to each premises is, or will be, for qualifying use. According to HMRC, the certificate should include:

• Supplier details: the supplier's name and address.
• Your details: your name, address and VAT registration number.
• The premises: the address of the supply it relates to, with a separate certificate for each premises.
• The percentage: the exact share of qualifying use.
• A signed declaration: by a responsible person, with their name, position and the date, confirming the facts are true and that you have read the guidance and will tell the supplier if the qualifying use changes.

Your supplier may provide its own form for this. Ask what it needs for charity non-business use, too. Keep a copy of the certificate and your workings. HMRC warns that anyone giving an incorrect certificate may be liable to a financial penalty, so base the percentage on evidence.

When you change supplier, the new supplier needs a certificate too. Send it promptly, or the new supplier may start billing at the standard rate. If your use changes, update the certificate.

The temporary zero rate on qualifying electricity

On 21 July 2026 the government announced a temporary zero rate of VAT for domestic supplies of electricity and other supplies of qualifying use in Great Britain, and at Budget 2026 extended it by three months. According to HMRC's VAT Notice 701/19:

• From 1 October 2026 to 30 June 2027, qualifying supplies of electricity in Great Britain (England, Scotland and Wales) are zero-rated.
• In Northern Ireland, qualifying supplies of electricity remain at the reduced rate of 5%.
• There are no changes to which supplies of electricity qualify. The same de minimis, domestic, charity and 60% mixed-use tests apply.
• The temporary zero rate is for electricity. HMRC's notice does not extend it to gas, so qualifying-use gas stays at the reduced rate.

Because the qualifying tests have not changed, the zero rate applies to whatever part of your electricity already qualifies. Standard-rated business electricity is not affected. HMRC updates its guidance when rates change, so check VAT Notice 701/19 for the position after 30 June 2027.

Checking your bill and putting it right

Use this quick check:

1. Look at the VAT line on each electricity and gas bill and note the rate applied.
2. Check your monthly kWh against the de minimis limits for each premises.
3. If you are a charity or a mixed-use site, check that your supplier holds a current certificate for each premises.
4. Check that the Climate Change Levy line reflects the same qualifying use.
5. If the rate looks wrong, raise it with your supplier in writing and send any certificate it needs.

How far back a supplier can correct VAT depends on HMRC's rules and the supplier's own process, so raise any issue as soon as you spot it. For anything beyond the general rules here, speak to your accountant or HMRC; we do not give tax advice. Our business energy bills explained guide shows where VAT and CCL appear on the bill.

How we can help

We act as an agent for Fidelity Energy, an independent business energy consultancy and broker, and introduce you to it. We help you gather the bills, supply numbers and use details for each premises, including whether any of it may be qualifying use, so your supplier has what it needs from the start. Fidelity Energy gets quotes from its network of business energy suppliers and arranges the contract you choose with the supplier. We do not give tax advice, so check your qualifying use with your accountant.

Running a charity, a mixed-use building or a small low-use site and want your energy set up on the right footing? Contact us and ask us for a quote.