How much is VAT on business energy?

Businesses have to pay VAT on their energy costs. But can you claim it back as part of your business expenses? And is your business eligible for a discount? Read on to find out the answers to these questions and more.

In this guide to VAT and business energy...

• How VAT works on UK business energy bills: Learn how VAT is added to business gas and electricity tariffs, what the standard 20% rate means for SMEs and how VAT appears on your commercial energy bills.
• When your business pays 20% VAT on energy: Understand why most UK businesses pay the standard 20% VAT rate on gas and electricity, how suppliers add it automatically and what this means for your total bill costs.
• When your business can pay 5% VAT on energy: See when UK firms, home‑based businesses, charities and low‑usage sites can qualify for the reduced 5% VAT rate on business gas and electricity.
• How to claim reduced VAT or money back: Find out how to submit VAT declaration forms to your supplier to get the 5% rate applied and reclaim overpaid VAT on your business energy bills for up to four years.
• How VAT, the Climate Change Levy and energy comparison link together: Discover how VAT on business energy interacts with the Climate Change Levy and why understanding VAT makes it easier to compare commercial gas and electricity deals across the UK.

How much VAT might I pay on my energy bills?

If you run a micro business or small business, here are some examples of how much VAT might add to your annual energy bills:

VAT on business electricity bills

Business size	Average business electricity bill (per year)	VAT at 5% rate	VAT at 20% rate
Microbusiness	£2,794 (based on annual usage of 10,000 kWh)	£140	£559
Small business	£5,456 (based on annual usage of 20,000 kWh)	£273	£1,091

VAT on business gas bills

Business size	Average business gas bill (per year)	VAT at 5% rate	VAT at 20% rate
Microbusiness	£850 (based on annual usage of 10,000 kWh)	£43	£170
Small business	£1652 (based on annual usage of 22,500 kWh)	£83	£330

^{Note: Prices are correct as of January 2026. Rates and bill size may vary according to your meter type and business location. The prices you’re quoted may be different from the averages shown. The figures shown are the average unit rates and standing charges quoted by Bionic per business size from January 1 to January 7, 2026.}

Can I claim back VAT paid on energy bills?

If your business is VAT registered, you should be eligible to recover the VAT in full on your business expenses, subject to the normal rules on VAT deduction. This includes VAT on energy costs, whether you're paying the normal 20% rate or reduced 5% rate.

You can apply for the reduced rate of 5% VAT if any of the following apply to your business:

• 60% of your office is used as a residential space. This is helpful if you work from home and have a small business
• You run a non-profit or charitable enterprise
• You operate self-catering housing for holidays
• Use less than 1,000 kWh per month of electricity or 4,397 kWh per month of gas

You may find you qualify partially for the discounted rate and need to pay the higher rate in some cases. It’s best to speak directly with suppliers to tailor a solution for your business.

To check how much tax your business can claim back, check the HMRC website.

If you qualify for the discount on business energy VAT rates, you might also be exempt from paying some, or all, of the Climate Change Levy.

What is VAT?

VAT, or value-added tax, is a government charge on goods or services. This includes the sale and purchase of consumer items, as well as assets, financial advice, commission, rentals and utilities. 

VAT is added to the price of nearly everything you can buy. There are some exemptions, including financial services, investments and insurance, education and training (excluding private schools), healthcare and medical treatment, funeral plans, burial or cremation services, charity events, and more. For a full list, visit the government website.

Does my business have to pay VAT?

If your business’s taxable annual income is above £90,000 then you need to register to charge VAT on the goods or services you sell, though you can volunteer to pay VAT if your turnover is less.

Should your business be VAT-registered?

If your business has an annual turnover of more than £90,000, then you are legally obliged to be VAT registered. You can register your business at the government website, and this must be done within 30 days of going over the threshold.

When you register, you will be sent a VAT certificate and details on when you need to submit a VAT return.

You can also register for VAT if you have a lower turnover than £90,000. Doing so means you can charge VAT on invoices and then claim it back on services, such as business energy.

Claiming back VAT isn’t always possible, and if you use any of the goods or services for personal and business use, you can only claim back the bits used for business. For example, if half of your mobile phone calls are personal, you'll only be able to claim back 50% of the phone's purchase price and service plan.

If you do become VAT registered, you should include the 20% VAT in the price of your goods and services. You then need to pay this VAT to HM Revenue and Customs (HMRC) every three months.

If you're thinking of becoming VAT registered, you should consider the pros and cons if you have a small business and want to keep costs and admin down.

Does my business have to pay VAT on energy?

Gas and electricity tariffs for businesses automatically have VAT added to them. This will be at the 20% rate unless you're eligible for the reduced rate of 5%.

In practice, that means most limited companies, sole traders and partnerships across England, Scotland and Wales will see business energy VAT charged at 20% on every bill unless they meet HMRC’s reduced‑rate rules

If you run your business from home, you'll need to pay 20% VAT on the gas and electricity used for business purposes. The rest will be paid at the 5% rate for domestic use. If you use less than 1,000 kWh per month of electricity or 4,397 kWh per month of gas, you can apply for the reduced rate of VAT on non-domestic energy (more on that below).

How much VAT does your business pay on gas and electricity?

Most businesses pay a 20% rate of VAT on business energy. Your supplier automatically adds this to your bill. 

For example, a microbusiness using around 10,000 kWh of electricity a year could pay over four times more VAT at 20% than it would at the reduced 5% rate, which is why checking eligibility matters for UK SMEs.

You might be eligible for a 5% discounted rate depending on the type of business you own and the way you use energy. You will normally need to complete separate VAT declaration forms for business gas and business electricity, and repeat the process for each UK site that qualifies.

How to get a discounted rate for VAT on business energy

Your business might qualify for a 5% discount on business energy VAT if:

• It is a charitable or non-profit organisation: You might even be able to claim back overpayment rebates for the previous four years if you didn’t know you were eligible for the discount, and as a result, you were overpaying
• You use at least 60% of your energy for ‘domestic purposes’: For example, if your business is also used for residential purposes, such as a care home or self-catering holiday accommodation. The 5% discount applies to the whole bill if you use 60% or more for domestic reasons, but if it’s less than 60% then only the proportion of energy used for domestic reasons is eligible
• You have a ‘low’ usage of energy: Low energy usage is usually defined as using less than 1,000 kWh of electricity every month (33 kWh a day), or 4,397 kWh of gas (145 kWh a day)

If you believe your business may qualify for a reduced VAT rate on business energy, you must submit a VAT declaration form, which you can get from your supplier. You’ll also be able to use the form to claim any overpayments from the last four years.

You’ll have to submit a separate declaration form for business gas and electricity.

What is the Climate Change Levy?

The Climate Change Levy (CCL) is a tax designed to promote energy efficiency and lower gas emissions for businesses. It only applies to units of electricity and gas you use, not to any other parts of your bill – for example, you won’t have to pay a levy on late payment fees or the standing charge.

How does the climate change levy affect VAT on business energy?

If you qualify for a reduced VAT on business electricity or gas and you meet the ‘low’ usage requirements (less than 1,000 kWh per month of electricity or 4,397 kWh per month of gas) you won’t need to pay the climate change levy.

Take control of your business energy bills

If you pay the normal VAT rate on your business energy bills and can't claim it back as an expense, you're paying an extra 20% each quarter. If you're on your supplier's out-of-contract rates, you could be overpaying by 33% or more compared to a fixed-rate contract.

While we can't do anything about your VAT bill, we can help with those expensive out-of-contract rates. Call our energy experts now on 0800 140 4667 or give us your postcode to start a business energy price comparison.

Business energy VAT FAQs

Still unsure about VAT and business energy? Check out the answers to our most frequently asked questions.

How much is VAT on business energy in the UK?

Most UK businesses pay 20% VAT on business gas and electricity, which is added automatically by their energy supplier to every bill.

When can my UK business pay 5% VAT on gas and electricity?

Your business may qualify for 5% VAT if it is a charity or non‑profit, uses mixed residential and commercial premises or meets HMRC’s low‑usage energy thresholds.

What are the UK low‑usage thresholds for reduced VAT on business energy?

You can usually get the 5% rate if your business uses less than 1,000 kWh of electricity a month or 4,397 kWh of gas a month, subject to supplier checks.

How do I apply for reduced VAT on my business energy bills in the UK?

To apply for 5% VAT you must contact your UK business energy supplier and complete a VAT declaration form for each eligible gas or electricity account.

Can UK home‑based businesses get 5% VAT on energy?

If you run a business from home, your commercial usage is normally charged at 20% VAT while your domestic usage remains at 5%, based on the agreed split.

Do UK charities pay VAT on business gas and electricity?

Registered charities and some non‑profit organisations in the UK can often pay 5% VAT on gas and electricity when at least 60% of their energy is used for residential or qualifying charitable activities.

Does my UK business still pay the Climate Change Levy if I get 5% VAT?

If your UK business qualifies for 5% VAT and meets the low‑usage rules, you usually will not pay the Climate Change Levy on business energy.

How does understanding VAT help when comparing UK business energy deals?

Knowing whether you pay 20% or 5% VAT on energy helps you compare business gas and electricity quotes on a like‑for‑like basis and estimate your true annual costs across UK suppliers.
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