Changes to the Way We Assess VAT and Climate Change Levy (CCL)
HMRC has recently updated its guidance on how VAT and Climate Change Levy (CCL) should be applied to energy consumption. We’re updating our processes to reflect this guidance, ensuring VAT and CCL are applied correctly and consistently across all meters at a premises while keeping billing clear, accurate and simple for our customers.
How are VAT and Climate Change Levy (CCL) applied to my energy supply?
VAT is normally charged on gas and electricity at 20%, unless it is for domestic or non-business use, in which case a reduced rate of 5% applies.
UK tax rules include de minimis thresholds, which assume that low consumption is domestic. Where usage is below these levels, reduced VAT applies and CCL is not charged.
What are the de minimis thresholds?
Electricity: 1,000 kWh per month
Gas: 4,397 kWh per month
Usage above these thresholds is charged at standard VAT (20%) and CCL.
What is changing in how consumption is assessed?
Previously, VAT and CCL were applied per meter, but HMRC now requires suppliers to consider total consumption across all meters at a premises.
For businesses with multiple meters at the same site, VAT and CCL may now be applied based on combined consumption.
FAQs
“A building or collection of buildings in close geographical proximity, owned or occupied by one customer within a defined boundary on one site, where each building serves the other in some necessary or reasonably useful way.”
For practical purposes, we have treated all meters contracted to the same customer within a single postcode as part of the same premises.
While any customer could be impacted, the following groups are more commonly affected:
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Public EV charge point owners or operators
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Landlords or property management companies managing multi-occupancy sites (for example shopping centres or shared office buildings)
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Sites with backup energy supplies or multiple meters
Recent HMRC guidance confirms that the de minimis thresholds do not apply to electricity supplied to public EV charging points, because these supplies are not considered domestic use.
As a result:
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Electricity supplied to public EV chargers is always subject to standard VAT (20%)
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CCL also applies
Relevant HMRC guidance is available here:
https://www.gov.uk/hmrc-internal-manuals/vat-fuel-and-power/vfup3100
In the majority of cases, no.
VAT can usually be recovered as input tax through standard VAT returns, provided the business makes taxable supplies.
Some organisations may not fully recover VAT, including:
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Financial institutions
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Landlords who have not opted to tax their properties
Unlike VAT, CCL is generally not recoverable, so any additional CCL will remain a cost to the business.
No, the recent invoices are part of a one-off correction exercise covering the last four years.
Going forward, our billing systems will ensure de minimis thresholds are applied correctly when invoices are issued, reducing the need for retrospective adjustments.
As part of this update, we reviewed how VAT and CCL were applied across customer accounts. Where aggregated consumption at a premises exceeded the de minimis thresholds, the standard VAT rate and CCL should have been applied.
HMRC rules require suppliers to correct tax treatment for up to four years. As a result, some customers have received supplementary invoices covering additional VAT and CCL for the period:
1 July 2021 to present
These invoices ensure that your billing is fully compliant with HMRC regulations.
Yes, supplementary invoices that only contain VAT adjustments (often referred to as VAT-only invoices) can usually be processed through standard accounting systems.
Yes, several other industrial and commercial energy suppliers have undertaken similar reviews to ensure compliance with VAT and CCL regulations.
We have also obtained independent advice from one of the Big Four accounting firms, which confirmed that this approach is fully aligned with current UK tax legislation.
While we cannot provide tax advice, HMRC guidance on the four-year cap for VAT adjustments can be found here:
https://www.gov.uk/hmrc-internal-manuals/vat-repayments/vatrec13090
Customers may wish to discuss their specific circumstances with their tax adviser.
We are happy to review cases where customers can provide clear evidence that multiple separate premises exist within the same postcode.