VAT Circle

[numbersrule]

I have been attempting some research on this question and there seems to be some misinformation online hence this post.

The question: Can a VAT Registered business claim back Input VAT on Energy Costs?

I have seen at least two references online saying that a business cannot claim back the input VAT on energy costs in the same way as for other business expenses.

However, the HMRC pages I have seen make no mention of energy costs being any different to other business expenses.

So what exactly is the correct position?

Thanks.

 

[Joyous]

Don't see why it can't. It's a taxable supply same as any other. Do you have the links to where it says you can't claim it?

 

[numbersrule]

Hi Joyous!

VAT on business energy bills explained | Swoop UK

The cost of energy for UK businesses has gone through the roof. Even with recent government interaction to keep a lid on prices, the average business is now

swoopfunding.com

 

[Joyous]

Hi Joyous!

VAT on business energy bills explained | Swoop UK

The cost of energy for UK businesses has gone through the roof. Even with recent government interaction to keep a lid on prices, the average business is now

swoopfunding.com

Well this is a copy and paste from HMRC:

"You work from home and your office takes up 20% of the floor space in your house. You can reclaim 20% of the VAT on your utility bills."

Which would suggest you can claim it.

 

[DWS]

As above, no reason why the input tax can not be claimed.
As long as it is an expense that has been incurred in making a taxable supply then it can be claimed.
Not sure where that link came from that you posted but it does not seem like a reliable source.

 

[Tables Force]

Seems like this (rubbish) has been around for a number of years already:

www.accountingweb.co.uk/any-answers/reclaim-vat-on-business-electricity-and-gas
www.accountingweb.co.uk/any-answers/can-vat-be-reclaimed-on-business-energy

 

[numbersrule]

Thanks Joyous, DWS & Tables Force.
It seems there has been some misinformation.

This brings me to the reason for the thread title VAT Circle.

We have a Client who has been charged 20% VAT on their energy for quite some time ( not got the bottom of how long yet ).

They are eligible for 5% VAT as micro entity so they have been charged too much VAT.

However, they have claimed back this Input VAT from HMRC.

So Question No 2 is : If our Client were to successfully obtain a refund of 15% VAT from their energy supplier, would they be compelled to pass on the refund to HMRC?

This then made me consider the wider picture, because their energy supplier may wish to claim back the VAT that they erroneously paid as Output VAT to HMRC.

So then the VAT Circle is complete and the 15% VAT has gone round in a circle.

So my final point in all this is:

What is the point of VAT on B2B energy supplies if it just goes round in a circle?

And is this why the misinformation noted above came to be?

I would welcome any further thoughts!

 

[DWS]

If the client receives the refund of the 15% VAT then yes this would need to be passed onto HMRC just like any other refund received where input tax had already been claimed.
The whole point of VAT is that it is the end consumer or end user that has to pay the VAT, it would not surprise me if at some stage in the future taxable supplies between 2 UK VAT registered businesses becomes part of a ‘Domestic Reverse Charge’ which is in operation in the Construction Industry.

 

[UK Contractor Accountant]

They are eligible for 5% VAT as micro entity so they have been charged too much VAT.

That's not the whole condition for claiming 5% rate applies.

60% or more of the energy supply relates to residential use is the main condition for 5% rating.

If you are a Ltd company claiming all the 5% vat back as the invoice is made out to your company you then have to do the recharge for the private use element to the Director which arguably will be at 20% VAT added.

 

[WaveJumper]

I perhaps assume (maybe be wrongly) this all depends on what name the supply contract is in, as we have seen on other threads in the past people have for some reason had the supply contract in their own personal name instead of the companies.

 

[NickGrogan]

They are eligible for 5% VAT as micro entity so they have been charged too much VAT.

No they are not.

They are eligible for 5% VAT if, any of...

The business's energy consumption is less than 1,000 kWh of electricity per month (33 kWh per day) or 4,397 kWh of gas per month (145 kWh per day)

At least 60% of the business's energy is used for residential or dwelling accommodation, and they have notified the supplier of this. This can be backdated but there are limits.

Or they are a charity and the premises is for charitable use - both parts must apply. Again you need to notify the supplier and backdating rules apply.

Also no CCL would be payable.

 

[UK Contractor Accountant]

The business's energy consumption is less than 1,000 kWh of electricity per month (33 kWh per day)

at todays rates the 33kWh per day just about covers turning the kettle on twice a day

 

[NickGrogan]

at todays rates the 33kWh per day just about covers turning the kettle on twice a day

It takes about 0.2kWh to boil a kettle, so 33kWh is quite a few cups of coffee.

 

[Paul Kelly ICHYB]

Whether they are charged 5% or 20%, doesn't it all come out in the wash of a VAT return?

 

[NickGrogan]

Whether they are charged 5% or 20%, doesn't it all come out in the wash of a VAT return?

I did wonder why the bookkeeper was worrying about it.

I can understand the issue for non-VAT registered businesses, but the OP says VAT registered.

 

[David Griffiths]

There is a potential cause for concern. If the wrong amount of VAT is charged on an invoice and HMRC pick it up in an inspection, it's possible that they might disallow the claim. That's on the basis that if it's not the correct amount of VAT, then it's not VAT at all, and hence disallowed.

I've not seen it applied in the case of fuel costs, where there can be two relevant VAT rates, but I can't say that I've seen (noticed would be closer) the wrong VAT rate being charged. I have seen it brought up where VAT was incorrectly charged on an obviously zero rated item. Their standpoint was that it's wrong, so go back to the supplier for a refund, don't expect us to give it. Having said that, VAT inspections are so rare these days that they are almost endangered.

 

[NickGrogan]

The 5%/20% VAT rules for energy are fairly obscure and the correct rate can change from month to month for customers using close to the 1000kWh limit.

Charities frequently have a mix of business and charitable sites, which are correctly charged different rates of VAT. If a charity has a non-charitable usage site below the 1000kWh limit, it will be charged 5% VAT, even though it is not eligible as a charity.

I don't think the average inspector is going to take the time to dig that deeply, even if they know the rules. There's nothing to be gained/lost either way.

 

[numbersrule]

Yes, apologies to the whole thread.
I think I should try to stop seeing problems where there are none!

 

[Paul Kelly ICHYB]

Yes, apologies to the whole thread.
I think I should try to stop seeing problems where there are none!

Looking at the responses, other people share your concerns!