VAT and Climate Change Levy on business energy: what you are charged and why

Open a business energy bill and you will find two tax lines near the bottom: VAT and the Climate Change Levy (CCL). They are easy to ignore, but they are worth understanding, because the rules differ from household energy and because the rates change.

This guide uses GOV.UK and Ofgem to explain what each tax is, the current rates, the situations where a lower rate applies, and what it means if you are VAT registered. We are an introducer, not a tax adviser. If your situation is unusual, check with your accountant or HMRC.

Where the two taxes sit on your bill

Ofgem’s billing guide groups tax costs, such as VAT and the Climate Change Levy, as one of the five cost buckets in a business bill. It asks suppliers to show them as separate items, and notes that tax may vary quite significantly between certain customers. That variation is why two businesses with similar usage can see different tax lines.

VAT on business energy

The rates

GOV.UK says the standard rate of VAT is 20%, and the reduced rate is 5% for some goods and services, including home energy. For fuel and power, GOV.UK’s VAT notice says supplies are subject to the standard rate unless they qualify for the reduced rate.

When the reduced rate (5%) applies

The reduced rate applies to supplies of fuel and power for qualifying use. GOV.UK sets out what qualifying use means:

• Domestic use, which includes certain types of residential accommodation.
• Charity non-business use. If a charity does not make a charge, its activities are generally non-business.
• Small quantities (de minimis). For electricity, supplies of not more than an average of 33 kWh per day or 1,000 kWh per month to one customer at any one of its premises are charged at the reduced rate, whether the bill is based on a reading by the supplier or the customer.
• Mixed use. Where a supply is partly for qualifying use and partly for other purposes, if 60% or more is for qualifying use the whole supply is treated as qualifying. If less than 60% is, the qualifying part is reduced-rated and the rest is standard-rated.

The de minimis limits for gas and other fuels are different, and they are set out in the same GOV.UK notice. If you think your site might qualify, the notice is the place to check, and your supplier is responsible for applying the right rate once they have the facts.

The temporary 0% rate from October 2026

GOV.UK says that on 21 July 2026 the government announced a temporary zero rate of VAT for Great Britain for domestic supplies of electricity and other supplies of qualifying use. It applies from 1 October 2026 to 31 March 2027, and in Northern Ireland qualifying supplies remain at the reduced rate of 5%. The word that matters is qualifying. This applies to supplies that already meet the reduced-rate conditions above, such as small quantities of electricity. It does not turn ordinary commercial electricity use into a zero-rated supply. If you think you might be affected, check section 3 of the GOV.UK notice or ask your supplier how your site is treated.

Climate Change Levy

GOV.UK explains that Climate Change Levy is paid at either the main rates or the carbon price support rates. You pay the main rates on electricity, gas and solid fuels if your business is in one of these sectors: industrial, commercial, agricultural or public services. The CCL main rates are listed on your business’s energy bill.

Current rates

Source: HMRC rates published on GOV.UK. The rates for 1 April 2027 were added in November 2025, so they are set in advance.

Who does not pay the main rate

GOV.UK says you do not pay the main rate on certain supplies, for example if you are a business that uses small amounts of energy, a domestic energy user or a charity engaged in non-commercial activities. Some fuels are exempt, for instance where energy will not be used in the UK, or electricity generated from renewable sources before 1 August 2015, among other listed exemptions.

Climate change agreements

GOV.UK says energy-intensive businesses that have entered into a climate change agreement with the Environment Agency can get a reduction on the main CCL rates: 92% for electricity, 86% for gas, 77% for LPG and 86% for coal and other solid fossil fuels. The scheme is voluntary, and eligibility depends on the facility and its process. If you think your business might qualify, GOV.UK points you to its eligibility check and to your industry trade association.

Reclaiming VAT if you are VAT registered

GOV.UK says you can reclaim VAT on items you buy for use in your business if you are VAT registered, by including it in your VAT return. You must keep records to support your claim and have valid VAT invoices. If only part of a purchase is for business use, you reclaim the business proportion. GOV.UK gives an example of someone working from home who reclaims a share of the VAT on utility bills in proportion to the floor space used for the office.

If your business sells a mix of taxable and exempt goods and services it may be “partly exempt”, which changes how much you can reclaim. That is the territory of an accountant or HMRC rather than an energy introducer.

How to check the tax on your own bill

1. Find the VAT line and the rate applied. Is it 20% or 5%?
2. Ask why if you think you meet the qualifying use tests. The supplier needs the facts to apply the right rate.
3. Find the CCL line and the rate per kWh. Does it match the published main rate for the period?
4. Check whether you hold a climate change agreement or might be eligible.
5. If you reclaim VAT, check your invoices are valid VAT invoices and that your records support the claim.

Quotes can show prices with or without tax. When you compare, make sure you are comparing like with like.

Common mix-ups

• “Energy-intensive” is not the same as “large”. GOV.UK says the CCA scheme is for eligible energy-intensive industrial facilities, and the reduction is for those holding a climate change agreement.
• VAT and CCL are different things. VAT is a sales tax; CCL is a levy on business energy use. Ofgem’s guide says both should appear as separate items on a bill.
• The temporary 0% rate is not a general VAT holiday. It applies to qualifying supplies of electricity in Great Britain between 1 October 2026 and 31 March 2027.
• Reduced rate is not automatic. GOV.UK says that if a supplier applies the reduced rate incorrectly, it can have to pay any VAT it undercharged. Suppliers therefore need the facts to apply it.
• Home-based business. Ofgem says that if you work from home you are probably on a domestic energy contract, so check with your supplier which rules apply to you.

If you think the wrong rate is being charged

1. Write down the rate on your latest bill and the period it covers.
2. Check the test you think applies, such as the small-quantity limit or the 60% rule, against GOV.UK’s notice.
3. Give your supplier the facts in writing and ask them to confirm the rate they apply.
4. If you cannot agree, ask your accountant or HMRC. We cannot give tax advice.

Frequently asked questions

Want to see quotes with the tax laid out?

Send us your latest bill. We introduce you to our energy partner, who gathers quotes and options from 50+ suppliers. You compare them and make the call. Absolutely no cost to you. It’s a free service.

Send us your latest bill