SPIRAL UTILITIES GUIDE TO REDUCED VAT ON CHARITIES ENERGY BILLS

Transcription

1 SPIRAL UTILITIES GUIDE TO REDUCED VAT ON CHARITIES ENERGY BILLS

2 Introduction UK energy companies view charities in the same way they do for other types of small businesses. The fact that charities can be large consumers of gas and electricity means that energy suppliers apply a business meter profile to a charity's premises. This means that charities need to be careful in dealing with their supplies, ensure that they serve notice on the suppliers within their terms and conditions, and shop around the market to ensure they are gaining best value on their supplies. Failure to manage these supplies can lead to contracts being rolled over onto much higher rates, incurring additional cost to the charity that they, usually, cannot afford. What VAT should we pay on our energy bills? Your charity, as with all businesses, has to pay VAT on supplies of fuel and power, the standard rate is currently 20%. However, you can claim the reduced rate of 5 per cent where fuel and power is supplied for what HMRC call qualifying use. Qualifying use means either: supplied for use in a dwelling or certain other types of residential accommodation, such as a children s home, hospice or care home for elderly or disabled people supplied for use in charitable non-business activities, such as free day care for disabled people In this instance non-business activities are those that you don t make any charge for. If you have premises where you carry out both business and non-business activities, you'll have to provide your fuel or power supplier with a certificate declaring the percentage of each use. As well as the definitions above, your supplies should automatically be charged reduced rate VAT if the usage is under specified limits. For example if your electricity usage for a supply is equal to or under 1,000 kilowatt hours a month, or if you receive a delivery of not more than 2,300 litres of gas oil, you will qualify for the reduced rate whatever the use of the building. Don t forget that you can also pay reduced rate VAT on maintaining equipment connected with the supply, and again if there is only part qualifying use then this reduction must be apportioned.

3 Does our charity qualify for reduced rate VAT? Your charity will qualify for the reduced rate of VAT on purchases of fuel and power, or on the cost of maintaining equipment connected with fuel and power, where it is used in connection with non-business activities (see below). To take advantage of this VAT relief your organisation must be able to show that it is registered with the Charity Commission for England and Wales. If it is not registered with them - for example, if it is exempt from registration with the Charity Commission or is a Scottish or Northern Ireland charity - then it must have evidence that it has been formally recognised as a charity by HM Revenue & Customs (HMRC) for tax purposes. To enable your supplier to charge you VAT at the reduced rate you must provide him with either: your Charity Commission registered charity number evidence that you have been formally recognised by HMRC as a charity for tax purposes What is a non-business activity? In order to know if you qualify for a reduced rate of VAT you must first make sure that some or all of the supply site is involved in non-business activities, such as - receiving income from purely voluntary donations where nothing is given in return receiving grant funding activities where your organisation doesn t make any charge As mentioned earlier you should also be charged reduced rate of VAT if your power or fuel supply falls within set minimum levels. This should happen automatically, but worth checking. In general charity shops are classed as 100% non-qualifying as they only carry out business activities on site. This is commonly misunderstood, but as the shops take money in return for goods they are classed as business use, even if every penny of profit is donated to the charity. Charities can claim for a partial exemption where they are also running non-business charitable activities on the same site such as care services, however any such claim must be agreed through your accountant and the HMRC.

4 What if we carry out business & non-business activities at one site? If 60 per cent or more of the fuel or power is supplied to you for use in your nonbusiness activities, then you'll pay the reduced rate of VAT on the whole supply. If less than 60 per cent of the fuel or power is for non-business use, VAT will be charged pro rata - that is, at the reduced rate on that portion which is for non-business use, and at the standard rate on that portion which is for business use. If you have a mix of business and non-business activities, you will need to provide your supplier with a certificate that declares what percentage of the fuel and power supplied is put to non-business use. Ask your supplier for a certificate to complete. A good example of mixed use could be say a hospice, which is qualifying use, but may also include a shop and perhaps a café which charges visitors for drinks etc which would be classed as business use. So the split needs to be determined and declared. The certificate must show: your fuel or power supplier's name and address the name, address and - if applicable - VAT registration number of your charity the address of the premises being supplied - if different to the above the amount of non-business use expressed as a percentage of the total use this must be a precise percentage a signed and dated declaration given by a responsible officer or official of your charity You should keep a copy of the certificate and related calculations, schedules and any other relevant documents, and must notify your supplier if the calculation changes as you may no longer qualify for the reduced rate. We use alternative energy sources, do these qualify? The HMRC set out those supplies of fuel and power that attract the reduced rate of VAT as follows: non-hydrocarbon combustible gases such as coal gas, water gases and producer gases hydrocarbon gases - that is gases consisting wholly of carbon and hydrogen, whether liquefied or not - such as methane, natural gas and Liquefied Petroleum Gas (LPG)

5 electricity, but not batteries or recharging services or arrangements fuel oil, gas oil or kerosene - provided they are not supplied for road use, meet the definition for heavy oil, and are either chargeable with excise duty at a rebated rate or are relieved from excise duty wood, peat and charcoal firewood solid fuels such as coal, coke, briquettes, and smokeless fuels, provided they are held out for sale solely as fuel If you are unsure as to whether your own fuel source is covered then speak with your local HMRC office for clarification. What related energy services could we claim reduced VAT on? As mentioned earlier in this guide it is possible to claim a reduced rate of VAT on energy related services within your organisation. These services must be billed to your charity by your energy/ fuel supplier to qualify for reduced VAT. The following related services are as set down by HMRC - disconnection and re-connection of the supply and special meter readings at the instigation of the supplier installation by a supplier of LPG, of a bulk gas tank regarded as essential to the supply of LPG 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 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 LPG 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 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

6 If we qualify for a reduction can we make a backdated claim? In short, yes you can claim up to four years of back payment. Any such rebate would be based upon the difference between 5% and the standard rate of VAT charged at the time of the bills (bearing in mind the number of times it has changed in recent years). However, please be aware that if you have been claiming for reduced VAT in error on a site, such as a shop where you were not entitled to do so, then the reverse can happen and the underpaid amount could be retrospectively claimed from you by HMRC. If you are subject to a claim from HMRC for underpaid VAT in these circumstances please contact Spiral Utilities who have experts that can assist you in ensuring that any such claims are dealt with fairly. Are there any other exemptions we can claim on our bills? If you are able to claim for reduced VAT on your energy bills then you are also exempt from the Climate Change Levy (CCL) which is automatically added to non-domestic energy bills. The CCL is a Government tax, introduced in 2001, on the use of energy by businesses, agriculture and the public sector. It applies to both gas and electricity. The aim of the levy is to encourage industry, commerce and the public sector to improve energy efficiency and reduce greenhouse emissions. The current levy for electricity is 0.524p per kilowatt hour (kwh) and Gas CCL 0.182p per kwh (updated April 2013). By successfully applying for the VAT reduction, charities should become automatically exempt from paying the Climate Change Levy. It is worth checking your first few bills after successfully applying for reduced rate VAT to ensure that you are not charged for CCL too. Please note that exemption to CCL is only applicable on supplies where you are entitled to reduced rate VAT i.e. qualifying supplies. As with your VAT, if you have been claiming an exemption on CCL and it is found that the supply did not qualify then the underpaid CCL can also be retrospectively reclaimed.

7 What should I do next? This explanation as to claiming reduced VAT on your energy bills has been produced by Spiral Utilities as guidance only. We would always strongly recommend that you take advice from your accountants and the HMRC with regard to any instances involving your tax liabilities. More information can also be found at - Spiral Utilities & Charity Retail Association Spiral Utilities are energy brokers established in 2003 and specialising in the retail and SME sectors. Spiral have been working with CRA for the past 5 years to provide its members with, what we believe to be, a unique service with regard to the management of their energy supplies. We understand that resources are scarce in any organisation and the luxury of being able to employ someone solely to manage your energy contracts, is beyond most. This is where Spiral Utilities comes in. As a CRA member, we make no charge to you for our service which includes: Monitoring all your energy contract end dates, so you never miss a renewal date A full review of the energy market at renewal, to secure best prices Management of contract terminations on your behalf Assistance in getting new energy supplies set up at new retail sites Professional and impartial advice and assistance when changing suppliers We would welcome the opportunity to discuss our services in greater depth with you and your colleagues who currently have to deal with these areas. We hope that a small amount of time spent now with us will result in you being able to free up your own resources to concentrate on more vital areas of your operations. Please contact either Mel Williams (m.williams@spiral-utilities.co.uk) or Andy McCorquodale (a.mccorquodale@spiral-utilities.co.uk) by or phone