VAT and CCL discounts

Although charities and non-profit organisations are often classed as small businesses when it comes to paying their energy bills, they are in fact eligible to have their bills discounted due to tax exemption rules for charities.

The rules are unclear on which charities and non-profits are eligible for discounts on their energy bills. The rules are also unclear on exactly how much the discount may be. Charities and non-profit organisations may be entitled to a reduction on their VAT of 15% – from 20% to 5%. This is for energy used for non-business purposes, as well as exemption from the Climate Change Levy (CCL), which also reduces bills by 5%. (The Climate Change Levy is a government charge on commercial electricity and gas which is designed to encourage businesses to lower their consumption and reduce greenhouse gas emissions.)

If your electricity or gas supply is used solely for business or non-domestic purposes, VAT will usually be charged at the standard rate and CCL (plus VAT on CCL) will also be added to the bill.

VAT

Despite many charities and non-profits being eligible for this discount, there are many providers that don’t automatically apply these discounts to their customers. This means that there are many organisations who are left in the dark about the fact that they could not only be paying less money on their existing energy bills but also that they could be claiming money back for overpayment. This overpayment can be claimed as far back as 2009!

In order for your organisation to be eligible for discounts on your energy bills, at least 60% of overall usage of energy must fall into one of the following categories.

Domestic use

  • A building, or part of a building, which consists of a dwelling or number of dwellings
  • A building, or part of a building, used for a residential purpose
  • A home or other institution providing residential accommodation for children
  • A home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present medical disorder
  • A hospice
  • Residential accommodation for students or school pupils
  • Residential accommodation for members of any of the armed forces
  • A monastery, nunnery or similar establishment
  • An institution which is the sole or main residence of at least 90% of its residents (except use as a hospital, a prison or similar institution, a hotel, inn or similar establishment)
  • Self-catering holiday accommodation
  • A caravan or a houseboat

If less than 60% of your energy is being used for your non-profit or charity then you can still claim a discount on the percentage of energy that is being used.

The energy bills discount applies to goods and services provided by an organisation for no profit other than donations or government grants.

The businesses that are eligible for charity energy discounts are:

  • Charities (registered or unregistered)
  • Non-profit organisations
  • Village halls, sports clubs, community centres, etc.
  • Free schools and academies
  • Care homes

If an electricity or gas supply is used wholly or partly for domestic or charitable non-business use, that part of the supply will qualify for a reduction on their rate of VAT. This is known as ‘qualifying use’. If you think you might be eligible for exemptions or rebates on your energy bills, you need to fill out a VAT Declaration form. You can get this form from your suppliers, or downloaded it online. You can find out more on the government website. Upon receiving a VAT Declaration form, suppliers usually take around 14 days to review the application and return with a decision. Customers with qualifying use are required to submit a separate Customer Declaration Certificate for each supply.

Once you have completed the VAT Declaration form, you need keep an eye on the bills from your charity electricity suppliers to make sure you’re not put back to the standard VAT rate by mistake. This should also be done when your energy contract is up for renewal or when you switch to a new energy supplier.

CCL (Climate Change Levy)

CCL is a tax imposed by the government. It was created to encourage reduction in gas emissions and increase efficiency of energy used for business or non-domestic purposes.

CCL is chargeable only on units/ kWh used and not on any other component of the bill such as fixed daily charges. Separate rates are set for electricity and for gas. These are now indexed-linked and are likely to increase on 1 April each year.

There are government concessions for ‘low usage’ of electricity and gas for business or non-domestic purposes, which means reduced rates on their VAT. These supplies are excluded automatically from CCL. You do not need to claim the reduced rate of VAT or exclusion from CCL on “low usage” because these concessions are applied automatically for each bill. If your electricity or gas supply is used wholly or partly for domestic or charitable non-business purposes, that part of the supply qualifies for the reduced rate of VAT and for exclusion from CCL. This is known as “qualifying use.” The percentage of qualifying use tends to vary between energy supplies to the same site. Customers are therefore required to submit a separate Customer Declaration Certificate per fuel, per account.

How to know if your organisation qualifies for reductions on your energy bills:

Premise’s typeCharitable business useCharitable non-business use
General charities• Activities or services provided, which are funded by:
Grants
Donations
Voluntary contributions
Investment income
• Membership subscriptions which only provide members with copies of reports, annual accounts and the right to vote at meetings
Where the activity is provided in return for a consideration
• Where the activity has a degree or frequency or scale
• Any membership subscriptions which provide members with additional benefits such as discounted entrance fees
Places of worship• Where the supply is used for worship and related meetings
• Where income is generated by donations, voluntary contributions or investment income, rather than by fixed charges
• Where any part of the premises is used for non-church purposes
• Where income is generated from hiring or renting out the facilities
• Where the premises are hosting fundraising activities, where goods and/or services are supplied in return for payment
Community centres• Activities or services provided, which are funded by:
Grants
Donations
Voluntary contributions
Investment income
• Membership subscriptions which only provide members with copies of reports, annual accounts and the right to vote at meetings
• Fundraising activities such as:
Hiring or renting out the facilities
Charging admission to events held on the premises
Sale of goods and services including food and refreshments
• Any membership subscriptions which provide members with additional benefits such as discounted entrance fees
Educational establishments• Where the education provider: Has charitable status
Does not charge for services
Where the education provider does not have charitable status.
The education provider has charitable status but charges for services.