VAT Reduction and CCL Exemption

Reduced VAT rate on Utilities for Residential Homes, Care Homes, Charities and Not-for-Profits

There are potentially thousands of Charities and Not-for-Profit organisations across the UK that are paying too much VAT and Climate Change Levies on their energy bills. Energy suppliers usually treat charities like small businesses when it comes to energy bills, but unlike small businesses, charities and certain other organisations are entitled to discounts on VAT and should not pay CCLs.

VAT Reduction and CCL Exemption for Charities and Non-Profits

Charities and non-profit organisations are entitled to VAT reductions of 15%, down from 20% to 5%, on energy used for ‘non-business’ purposes, as well as exemption from the Climate Change Levy (CCL)*. Energy suppliers do not automatically apply these discounts and many UK charities end up paying significantly more than they should for their energy.

A recent study showed that over a third (37%) of charities do not know they could claim a reduced rate of VAT and CCL exemption, and even more (74%) were unaware that rebates for overpayments can be claimed as far back as 4 years. The good news is that it’s not too late to act.

Does your organisation qualify for the Charity VAT discount?

All of the following organisations may be eligible for reduced VAT and CCL exemption:

What is the Climate Change Levy (CCL)?

CCL acts as a Carbon Tax and is applied to businesses and other organisations in the industrial, public services, commercial and agricultural sectors, and is charged on gas and electricity.

It is designed to encourage businesses to reduce energy consumption and their carbon emissions.

It is applied to your energy bill and collected via your supplier on behalf of the UK Government.

As a charity, or not-for-profit, it is likely that you are exempt from CCL, although this will depend on your VAT status.

CCL is charged at different rates for gas and electricity and can add significantly to your energy bills. As a charity, if you are not claiming a VAT reduction, you should check to see if you qualify.

Touchstone have successfully represented our clients to obtain CCL refunds for incorrect billing. If you are not currently claiming CCL exemption, or are being over charged, contact us for help.

How can charities apply for the discount?

Those eligible for exemptions or rebates will need to fill out a VAT Declaration form, which can be obtained from their suppliers. Upon receiving a VAT Declaration form suppliers usually take around 14 days to review the application.

Touchstone can work with your supplier to make sure you are placed in the correct VAT and Climate Change Levy rates, and ensure you are paid any refund due to you.

Mixed use

Where there is a mix of activities, some of which meet the government’s criteria for domestic or charitable non-business use and some which do not, you will need to estimate the split between qualifying and non-qualifying use, for each individual meter, in order to submit the appropriate VAT declaration.

Your estimate can be based on any method that is ‘fair and reasonable’, such as rating of appliances, annual consumption, or square footage. Charities can use their annual accounts to estimate the split between ‘non-business’ funding and ‘business’ income.

Energy Suppliers

It isn’t the responsibility of energy suppliers to facilitate VAT reductions and it is often overlooked unless you inform your supplier in advance. A recent study showed that 36% of charities were unaware of these potential reductions and exemptions.

The reduced rate VAT won’t be applied automatically to your bills, so you will need to let your supplier know, and they will supply you with the corrects forms. If you need help, please contact us.

Nevertheless, even after notifying a supplier, the exemptions can be ignored, and charities are frequently overcharged on items such as VAT and climate change levy.

If you think you have been misbilled for an extended time you can claim back up to 4 years of overpayments.

Do you need help? We continually find billing errors and have helped many organisations obtain refunds in the tens of thousands of £’s.

VAT Charitable Exemption Rules on gas and electricity:

Where there is 60% or more qualifying use (either domestic or charitable non-business), the whole of the supply is excluded from CCL. Your Customer Declaration Certificate should, however, reflect your best estimate of the actual percentage of qualifying use for each meter as, under HMRC guidelines. Be specific in your wording, vague phrases such as ‘over 60%, therefore 100%’ – or similar – will normally be returned by the supplier for further clarification.
Where there is between 1-59% qualifying use (either domestic or charitable non-business), that part of the supply will be charged at the reduced rate of VAT and will automatically be excluded from CCL. The non-qualifying use will be subject to VAT and CCL at the appropriate business /non-domestic rate.
Where there are varying percentages of qualifying use on different meters (for example, one meter with 30% qualifying use and another with 70%), the qualifying element for each will be charged at the reduced rate of VAT and automatically excluded from CCL. The non-qualifying use on each will be subject to VAT and CCL at the appropriate business / non- domestic rate.

For any advice or help, get in touch, and we will help confirm your eligibility. We can also process your application for VAT reduction and CCL exemption with your supplier.

VAT Reduction and CCL Exemption