Don’t miss out on the reduced rate of VAT
Under normal circumstances, everything is subject to VAT at the standard rate (currently 20%) but there is a reduced rate (currently at 5%) for residential and charitable use.
This includes properties which are used for charitable or housing purposes or, if you are in the education sector such as FE and 6th form colleges, as well as independent schools providing boarding accommodation.
You should regularly review the VAT position of the fuel and power supplies you receive.
The 5% VAT relief applies in the following circumstances, but there are penalties that can apply if you go beyond what is fair and reasonable, as they apply to the recipient of the supplies, rather than the supplier.
1) Qualifying non-business use
Charities are eligible to claim the reduced rate of VAT where the fuel and power is used for non-business purposes.
Most charities will know whether their activities are business or non-business, but as a general rule of thumb, if a charity does not make a charge for the activities it undertakes, then these activities are likely to be non-business.
The supply of fuel for non-business purposes is taxed at a reduced rate. It is more common for charities to have a mixture of business and non-business use and as such the following rule can be applied:
- If the non-business use is 60% or more, the whole of the supply can be treated as qualifying and subject to the reduced rate
- If the non-business use is less than 60%, the supply will need to be apportioned between the non-business use which is a qualifying use charged at the reduced rate, and the business supply which is charged at the standard rate of 20%.
Where the charity uses the fuel or power for qualifying use, the charity should provide its supplier with a certificate – this should declare the percentage of fuel or power used for a qualifying supply if it does not qualify in full.
2) Supplies to domestic premises
Supplies of fuel and power for domestic use are always subject to a reduced rate regardless of quantities. For the majority of premises, it will be obvious if it is domestic but this is not always the case, especially if premises have been converted and fuel supplies should be reviewed to check the correct rate is applied.
For charities, this will be housing and other residential premises such as care homes, hospices, residential premises, school accommodation, etc.
3) Small quantities
In all cases, deliveries of certain small quantities of fuel and power are automatically treated as being for a qualifying use. These are supplies of:
- electricity of less than 1000 kwh per month
- gas oil of less than 2,300 litres per delivery
- gas of less than 4,397 kwh per month
- LPG of less than 2 tonnes (not in cylinders) or less than 20 cylinders containing less than 50 kg
Climate Change Levy (CCL)
CCL is payable by commercial consumers on the supply of fuel and power. It is levied by the government but charged and collected by fuel suppliers. It is worth noting that VAT is charged on the CCL inclusive price.
The rules on the application of CCL are similar to the reduced rate for VAT – CCL is not payable on domestic property, used by a charity for a qualifying purpose or small quantities.
The same 60% rules apply above and, as with VAT, charities need to supply a certificate to the fuel provider to obtain CCL relief. If VAT relief is claimed it should also apply to CCL relief but this may not always be the case,
There are reliefs available for certain use but it is not always automatically given by the suppliers.
Charities should review their fuel bills to check for eligibility and, where applicable, issue a certificate to claim the relief. This can also be back dated in certain circumstances so this should always be explored where possible.
For VAT guidance for your charity, contact our team today.
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