Why charities pay less for energy
Many charities pay more than necessary for their business gas and electricity, even though they often qualify for lower business energy rates and specific VAT rules that reduce overall costs. Reviewing your current charity energy supplier and tariff can highlight where savings could be made and help you secure better value from charity electricity suppliers and gas providers.
VAT relief on charity energy
Charities are treated differently from other organisations when it comes to VAT. Although most charities pay VAT on standard rated goods and services, many qualify for reduced VAT rates on their energy bills. This can significantly lower the cost of gas and electricity for charities and not for profit organisations.
Charities may be able to pay the reduced VAT rate of 5 percent or even zero VAT on certain goods and services. Energy can qualify for this relief when it is used for eligible charitable activities.
You can usually claim the 5 percent rate on power and fuel if your charity uses them for any of the following:
- Residential accommodation, including care homes for older people or children
- Charitable non business activities, such as providing free support services for disabled people
- Small scale energy use, for example up to 1,000 kWh of electricity per month or a 2,300 litre order of gas oil
If less than three fifths of your total energy use qualifies for VAT relief, you will pay the reduced 5 percent rate on the qualifying portion and the standard 20 percent rate on the rest.
Qualifying energy includes electricity, gas, oils and solid fuels such as coal. Vehicle fuel is not eligible for charity VAT relief.
Climate change levy (CCL) exemption
The Climate Change Levy is a government tax applied to business gas and electricity use to encourage organisations to reduce their carbon emissions. Many charities do not need to pay the CCL because they qualify for relief in the same way as other non-profit organisations.
Your charity may be exempt from the CCL if your energy is used wholly or mainly for charitable, non business activities. This includes work that provides free support or services to the community. If your charity meets the criteria, your energy supplier can remove the levy from your gas and electricity bills once you submit the correct declaration.
CCL exemption can noticeably reduce overall business energy rates for charities, so it is worthwhile checking whether your organisation qualifies.