Energy providers are currently carrying out compliance reviews of their customers in conjunction with HMRC. If your business has a mixed supply meter (covering both domestic and commercial use), or multiple accounts at the same premises, you may be affected.
As part of this process, you may be asked to provide evidence to your energy provider showing the percentage split between business and domestic energy usage. This split will then be used to determine the correct rate of VAT and Climate Change Levy (CCL) applied to your future bills.
Why does this matter?
The difference in tax treatment can be significant. Domestic energy is typically charged at 5% VAT, whereas commercial energy is charged at 20% VAT, with CCL usually applying to commercial usage only.
In some cases, energy providers may also revisit bills dating back to April 2023 and apply this percentage retrospectively. While these adjustments relate to VAT and CCL, it’s important to note that not all of these costs may be recoverable.
What should you look out for?
Energy providers have begun issuing letters and emails outlining what information they require, along with deadlines for submitting evidence. It’s important to keep an eye out for these communications - including checking your spam folder - as missing the deadline could result in your entire bill being treated as commercial.
This means:
- 20% VAT applied to all energy usage
- CCL charged across the full amount
- Potential rebilling back to April 2023 on this basis
Again, not all of these additional costs may be reclaimable.
How can you calculate your energy split?
Your energy provider will usually provide guidance and specific forms to complete. Common methods for determining the split between domestic and commercial use include:
- Time of use
- Floor space
- Income-based calculations
- Appliance usage and occupancy
Choosing the most appropriate method will depend on your individual circumstances.
What happens next?
Once you’ve submitted your evidence to your energy provider, it’s important to share a copy with us. This percentage may be used by HMRC, so we need to ensure your accounting treatment aligns accordingly.
If you don’t receive a letter or email, it may simply mean your account has not been selected for review - or the provider has yet to contact you.
Need support?
If you would like guidance on how to respond or calculate your energy split, our VAT team is here to help.
