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Introduction

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The term fuel and power generally refers to Gas, Electricity and Oils supplied to either Businesses (non domestic), Domestic (residential) or mixed use (both business and domestic) customers for consumption.   

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VAT

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Rates of VAT 

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• 20% VAT (Standard Rated)

• 5 % Reduced Rate VAT

• 5% De minimis (where consumption is below 33kWh per day / 1000kWh per month for Electricity and 145kWh per day and 4397kWh per month for Gas

• Outside the Scope = No VAT

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Reduced - Rated Supplies

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The reduced rate of VAT applies to supplies of fuel and power for qualifying use. Section 3 explains what qualifying use means.

The following supplies are considered qualifying use:

• fuel and power for domestic use (read paragraph 3.2)

• fuel and power for charity non-business use (read paragraph 3.3)

• fuel and power where the amount supplied does not exceed the small quantities, called the de minimis limits 

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 the reduced rate applies to:

• disconnection and re-connection of the supply and special meter readings at the instigation of the supplier

• installation by a supplier of liquefied petroleum gas of a bulk gas tank regarded as essential to the supply of liquefied petroleum gas

• installation of check meters

• installation or replacement of lines and switchgear belonging to the electricity supplier

• installation tests and re-tests where required by the supplier to protect their equipment

• maximum demand and minimum guarantee charges

• removal of damaged coins or tokens from meters

• rental charges for meters, including secondary meters used by landlords to apportion charges between their tenants

• rental of a bulk gas tank in conjunction with the supply of liquefied petroleum gas to that tank

• repair, maintenance or replacement of equipment and gas pipes or electric cables (belonging to the supplier) up to and including the consumer’s meter, (where the supplier’s conduits are within the fabric of a building, reduced rate supplies by the supplier are limited to work essential for getting at the conduits, and making good, all consequential work is standard-rated and contractors’ supplies to the supplier are standard-rated)

• replacing a credit meter with a pre-payment meter under the supplier’s Code of Practice, or replacing or re-siting by a supplier of their meter at their instigation

• replacement of mains fuses and provisions of earthing terminals

• standing charges 

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Note:

 

• Any of these supplies are standard-rated when supplied by a contractor other than the supplier of fuel and power.

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• If a supplier instructs a contractor to send a bill direct to a consumer for work that would have been at the reduced rate if invoiced by the supplier, the contractor must charge the consumer VAT at the standard rate.

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• Supplies from sub-contractors to suppliers of fuel and power are not eligible for the reduced rate of VAT.

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Standard Rated Supplies

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These supplies are standard-rated:

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• wholesale supplies of fuel and power

• matches

• any road fuel gas or hydrocarbon oil on which excise duty is chargeable 

• hire of mobile generators for operation by the customer

• repairs, maintenance and replacement of pipes not belonging to the fuel or power supplier, normally those on the consumer’s side of the meter

• servicing contracts other than supplies of insurance

• sale of meters to commercial, industrial and domestic consumers for their own use

• altering coin mechanisms of secondary meters

• services in connection with tests carried out, for example, at the request of estate agents or prospective purchasers of premises

• replacement of meters not under the supplier’s Code of Practice and re-siting meters at the request of the consumer

• diverting mains to meet local authority requirements (these supplies are zero-rated when work is carried out in the course of construction of new dwellings) (read Buildings and construction (VAT Notice 708))

• raising or lowering of overhead power lines in connection with the movement of abnormal loads, including escorting the loads (these supplies are zero-rated when work is carried out in the course of construction of new dwellings), read Buildings and construction (VAT Notice 708))

• supply, repair and maintenance of public lighting circuits to local authorities

• temporary floodlighting, emergency or decorative lighting

• blast freezing

• supplies of electricity for recharging vehicles when using charging points situated in public places

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Connecting Dwellings to Mains Power

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With effect from 1 January 2012 the treatment of one-off charges for the first time connection to gas and electricity is as follows:

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• if the supply of the connection and provision of the utility is made by the same person (or by members of the same VAT group) the connection charge will follow the treatment of the utility and be reduced-rated

• if the supplies are not made by the same person or if at the time of connection, the supplier of the utility has not been determined, the connection charge will continue to be standard-rated (irrespective of who eventually provides the utility)

• the first time connection of a new dwelling or relevant residential or relevant charitable building to the gas or electricity mains supply is zero rated under group 5 of schedule 8 to the VAT Act 1994 if the connection is made as part of the construction of the building (read Buildings and construction (VAT Notice 708))

• works in connection with the means of providing fuel and power as part of the renovation or alteration of empty residential premises, or of the conversion of premises to a different residential use may be reduced-rated under group 6 and group 7 of schedule 7A to the VAT Act 1994, if performed on the immediate site of the premises (read Buildings and construction (VAT Notice 708))

• grant-funded connection or reconnection to a mains gas supply relating to a qualifying person’s sole or main residence is reduced-rated under Item 4 to group 3 of schedule 7A to the VAT Act 1994, (read Energy-saving materials and heating equipment (VAT Notice 708/6))

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Customer Types

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• Residential = non business customer = 5% reduced rate VAT charge

• Business = customer where fuel and power is used to run a business = 20% VAT Standard Rate or 5% where usage is de minimis.

• Mixed Use = customers where there is business use and also residential use at the same premises. If mixed use (domestic use) is less than 60% then the customer will be charged 20% Standard Rate VAT for the business use portion and 5% reduced rate for the domestic use portion. Where mixed use (domestic) is 60% or more, then the customer will be charged 5% reduced rate VAT on their total bill.  

• Charities = Non business charities = 5% Reduced Rate  

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Electric Car Charging

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• VAT is applied at 20% where electric cars are charged at public charge points. 

• For electric cars charged at buildings designated as businesses, 20% VAT will be applicable subject to the normal de-minimis consumption threshold, where 5% VAT is applicable if this is not exceeded.  

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Mixed Use - Certificates

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If you supply fuel and power for mixed use (domestic and business use), you should obtain a certificate from your customer that declares what percentage of the fuel and power that you supply to each premises is, or will be, put to a qualifying use. Your customer must provide a separate certificate for each supply of fuel and power to separate premises.

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The following information should be shown on the certificate:

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• your name and address

• your customer’s name, address and VAT registration number

• the address of the premises your supply relates

• the amount of qualifying use expressed as a percentage of the total use, always give an exact percentage

• a declaration given by a responsible officer or official of your customer as to the truth and accuracy of the facts given, this should include:

  • the signature

  • name

  • position of the person giving the declaration

  • the date on which it is made

  • an endorsement that the customer has read and understood the guidance and that they know they must notify the supplier if there is a change in the qualifying use

Your customer should retain a copy of the certificate and related calculations, schedules and any other relevant documents, so that we can see these if required. Anyone providing an incorrect certificate may be liable to a financial penalty.

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Where a customer has not furnished a certificate, it is natural for a supplier to charge VAT at the standard rate on the supply. However, it is not uncommon for customers to react by issuing a backdated certificate to the supplier. In such circumstances, we accept the supplier may agree to adjust the VAT. However, this is a commercial decision between the supplier and the customers. Where a supplier agrees to adjust the VAT, then any adjustment will be subject to the normal rules on errors and adjustment.

Backdated certificates are also acceptable for climate change levy purposes subject to normal rules.

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Climate Change Levy (CCL)

Non residential customers are required to pay the Climate Change Levy (CCL) as part of their bills for the industrial and commercial supply of

taxable commodities for lighting, heating and power in the following sectors of business:

• agriculture

• industry

• commerce

• public administration

• other services

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Taxable commodities are:

• coal and lignite (brown coal)

• electricity

• petroleum and hydrocarbon gas in a liquid state

• coke, and semi-coke of coal or lignite

• natural gas as supplied by a gas utility

• petroleum coke

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Note:  The levy does not apply to taxable commodities used by domestic consumers, or by charities for non-business use. Supplies of small amounts of energy (de minimis) are also excluded.

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The value of a supply for VAT purposes will include Climate Change Levy where appropriate. Therefore CCL is added to the normal charges prior to calculating the VAT amount. 

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Wholesale Supplies of Gas & Electricity

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Domestic Reverse Charge 

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• Supplies of Electricity and Gas where the supply is B2B and intended for onward resale = Domestic Reverse charge procedure applies. Customer Accounts for VAT. 

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Subject to certain exceptions the reverse charge applies to all wholesale supplies of gas and electricity between counterparties established in the UK.​  This means wholesale supplies between UK counterparties under trading contracts (for example European Federation of Energy Traders contracts, Grid Trade Master Agreements and National Balancing Point contracts) and over the counter or spot contracts of gas, where it’s gas supplied through a natural gas system situated within the UK or any network connected to a natural gas system in the UK, or electricity.

 

Examples of specific supplies or charges covered by the reverse charge are:

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• balancing mechanism imbalance settlement charges, and other gas balancing or gas reconciliation charges

• services supplied under a wholesale or trading contract that are ancillary to the supply of gas or electricity

• gas loaded onto road trucks and delivered at a flange linked to liquid natural gas storage facilities, that is, the gas is still within the natural gas system or a network connected to it

• shipper to shipper metering correction charges where the consumer has changed supplier

Supplies to power stations and combined heating and power plants will only be included in the reverse charge where they’re made by way of trading rather than for consumption only.

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​Services not covered by the Domestic Reverse Charge 

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The reverse charge will not apply to supplies of gas and electricity made under supply licence or metered arrangements to domestic and business premises (supplies for consumption). VAT-registered businesses that do not resell or trade the gas or electricity will not be affected.

 

Unless the supply is incidental to a reverse charge supply, the reverse charge will not apply to supplies:

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• of Liquified Natural Gas delivered ‘ship-to-ship’

• of natural gas liquids (ethane, propane butane and condensate) sold separate to the sale of gas

• made by an accredited feed in installation

• currently zero-rated, for example trades on terminal markets

• to third party intermediaries and directed utilities for consumption by the directed utility or onward supply by the directed utility to an end user for consumption

• that are contracted for separately from wholesale supplies of gas and electricity, for example transportation services and of biomethane where they’re from a production plant with a registered capacity of no more than 4,000 metres cubed per hour

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Further examples of specific supplies or charges not covered by the reverse charge include:

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• distribution use of system charges

• transmission network use of system charges

• metering rental charges

• data collection charges

• balancing system use of system charges

• interconnector capacity charges

• gas storage charges

• gas network system charges

• payments made in respect of constraint contracts with National Grid

• balancing and settlement code charges (Elexon market operator charges)

• Levy Exemption Certificates traded separately from the underlying electricity

• Renewable Obligation Certificates (ROCs) traded separately from the underlying electricity — read paragraph 3.8 for the reverse charge for ROCs traded separately

• fees for exchange related settlement for example N2Ex fees

• option premiums

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This is not a full list.

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Power Purchasing Agreements - Electricity Supplied

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Sales of electricity made under a PPA or similar agreement may or may not be subject to the reverse charge depending on their wholesale features.

Electricity sold under such an agreement will not be regarded as wholesale and so will not be subject to the reverse charge where all of the following apply:

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• the seller of the electricity is a generator who’s exempted from holding a generating licence

• the generation capacity by asset is 100 megawatts or less

• the generated volume is not allocated to the generator’s production account with Elexon (or the generator account with the Single Electricity Market Operator (SEMO) in Northern Ireland)

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Similarly, if your generated power is sold under a PPA or similar agreement to the NFPA, NFPA Scotland Ltd or NFPA Services Ltd and the generated power is not allocated to your production account with Elexon or generation account with SEMO, that power is excluded from the reverse charge.

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The sale of the power by the NFPA by auction is also excluded from the reverse charge.

 

Emission Allowances

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Only those compliance market credits which can be used to meet obligations under the EU Emissions Trading Scheme (EUETS) are subject to the reverse charge mechanism.

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These currently comprise of EU Allowances, as defined in Directive 2003/87/EC (as amended). Some Certified Emission Reductions (CERs) and some Emission Reduction Units (ERUs), as defined in the Directive, were also subject to the reverse charge.

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As from 1 May 2021, these CERs and ERUs are no longer within the reverse charge.

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At the beginning of 2021 a new UK Emissions Trading Scheme (UKETS) was introduced. This broadly follows the EUETS and an amendment was made to the scope of the reverse charge so that it applies to UK allowances from 1 May 2021.

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Reverse Charge Treatment for Utilities

 

Utility companies are suppliers of gas, electricity, water, telephone or internet services to homes and businesses, or a business (including the corporate group) that supplies such services.

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They’re likely to be regulated or working under legislation administered by the Office of Gas and Electricity Markets (Ofgem), the Water Services Regulation Authority (Ofwat), or the Office of Communications (Ofcom).

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Construction services received by utility companies, will be eligible for exclusion from the reverse charge under the end user exemption, if:

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• the utility company confirms to the supplier in writing that it is an end user

• the work is being carried out during construction, repair or alteration of the utility companies own assets — for example part of their own infrastructure for delivering power, water of whatever utilities they are responsible for

If a utility company charges for work to connect, disconnect, reconnect, divert, ‘make safe’ or ‘cap off’ parts of its own utility network, this work is generally not within the scope of ‘construction services’ for the purposes of the reverse charge. This is because they are not making onward supplies of construction services. Normal VAT rules will apply to any such charges.

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Services provided by utility businesses which also do not fall within the domestic reverse charge include:

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• provision of a connection to a utility network, or diversionary works to allow the relocation of the network

• development and construction of a private network to be owned by the utility and leased or sold to the customer

• work that is not within the scope of the Construction Industry Scheme, such as the installation of a boiler (and ancillary supplies)

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Exceptions to this will be when a utility company takes on the role of contractor for particular projects such as:

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• constructing, repairing or maintaining a private power or gas network for a customer

• installing full heating systems

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Reverse Charge Treatment for Utilities

The end user exclusion will usually apply to supplies to public bodies.

Most supplies will either be:

• related to works to the public body’s property and land

• provided to the public body so it can discharge its responsibilities under a special legal regime

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If the public body is acting on a commercial basis, and selling on the construction service, the end user exclusion will not apply. The public body will receive a reverse charge supply and have to account for the VAT to HMRC. It will also have to establish the end user status of its customer to determine whether to charge VAT or apply the reverse charge in respect of its onward supply.

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-Contains public sector information licensed under the Open Government Licence v3.0.

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