VAT on Fuel and Power

The VAT treatment of fuel and power depends on who is using it and what for. In most cases, domestic and certain charitable users benefit from the reduced rate of VAT (currently 5%), while business users pay the standard rate (20%). Understanding these rules is important whether you're buying energy for your business, accounting for private fuel use in company vehicles, or supplying energy to tenants.

Domestic and qualifying use

Fuel and power supplied for qualifying use is charged at the reduced rate of 5%. Qualifying use includes:

• Domestic use – energy supplied to homes for heating, lighting, cooking and other household purposes
• Charity non-business use – fuel and power used by charities for activities that are not business activities
• Small quantities (de minimis) – very small amounts of fuel and power that fall below specified thresholds
• Mixed use – where 60% or more of the supply is for qualifying purposes, the entire supply qualifies for the reduced rate

For VAT purposes, the supply of heat, power, refrigeration or ventilation is treated as a supply of goods, not services. This affects how the time and place of supply rules apply.

What the reduced rate covers

When fuel and power qualifies for the reduced rate, the 5% rate applies not just to the energy itself but also to related charges made by the supplier, provided these charges are inseparable from the supply of fuel or power. This includes:

• Standing charges
• Meter rental charges (including secondary meters used by landlords to divide costs between tenants)
• Disconnection and reconnection fees
• Installation, repair, maintenance or replacement of equipment, gas pipes or electric cables belonging to the supplier, up to and including the consumer's meter
• Installation of bulk gas tanks for liquefied petroleum gas supplies
• Replacing credit meters with pre-payment meters under the supplier's Code of Practice
• Maximum demand and minimum guarantee charges
• Special meter readings requested by the supplier

However, if a contractor (rather than the fuel supplier) carries out any of this work and bills the consumer directly, the standard rate of 20% applies instead.

Standard-rated supplies

The standard rate of 20% applies to:

• Business supplies – fuel and power used for non-qualifying purposes (commercial, industrial use)
• Wholesale supplies – fuel and power sold to businesses for resale or distribution
• Road fuel – any road fuel gas or hydrocarbon oil subject to excise duty (with certain exceptions)
• Electric vehicle charging – electricity supplied through public charging points for recharging vehicles
• Work on pipes, meters or equipment on the consumer's side of the meter
• Servicing contracts (other than insurance)
• Sale of meters to consumers for their own use
• Meter replacement or re-siting requested by the consumer (not the supplier)
• Temporary lighting (floodlighting, emergency or decorative lighting)
• Blast freezing
• Hire of mobile generators operated by the customer
• Tests carried out at the request of estate agents or prospective property buyers

Matches are also standard-rated, despite being a fuel product.

Work on the supplier's infrastructure

The reduced rate only applies to work on equipment belonging to the fuel or power supplier, up to and including the meter. Any repairs, maintenance or replacement of pipes, cables or equipment on the consumer's side of the meter are standard-rated.

Where the supplier's equipment is within the fabric of a building, reduced-rate supplies are limited to work essential for accessing the equipment and making good afterwards. Any additional consequential work is standard-rated, and contractors' supplies to the supplier are also standard-rated.

Special rules for landlords

Landlords who supply fuel and power to their tenants can benefit from the reduced rate on:

• The fuel and power itself (if it qualifies for domestic or other qualifying use)
• Rental charges for secondary meters used to apportion charges between tenants

This applies whether the landlord is VAT-registered or not, though only VAT-registered landlords need to charge and account for VAT.

VAT reverse charge

Certain wholesale supplies of gas and electricity are subject to a VAT reverse charge. This means the customer, rather than the supplier, accounts for the VAT. This is referred to as the domestic reverse charge (not to be confused with domestic household supplies).

If you carry out or purchase construction services relating to gas and electricity infrastructure, you may also need to use the reverse charge for building and construction services.

Supplies outside the scope of VAT

Some charges are outside the scope of VAT altogether. This includes replacement by gas or electricity suppliers of dangerous, obsolete or inefficient appliances or parts (after the meter) when done under statutory contractual obligation. These limited circumstances arise when energy companies must undertake work to comply with their statutory obligations to supply fuel.

What this means for your business

If you run a business, you'll pay standard-rate VAT on your fuel and power supplies, but you can normally reclaim this as input tax on your VAT return (subject to the usual rules). If you use fuel for both business and private purposes – for example, petrol in a company car used for private mileage – you may need to account for fuel scale charges or apply the appropriate apportionment method.

If you're a landlord supplying energy to residential tenants as part of their rent or as a separate charge, you should charge the reduced rate provided the supply is for domestic use.

Sources

• Fuel and power (VAT Notice 701/19)
• VAT rates
• Domestic reverse charge procedure (VAT Notice 735)
• VAT domestic reverse charge for building and construction services

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.