VAT and Climate Change Levy on Business Energy (2026)

Short answer

Business energy is normally charged 20% VAT plus the Climate Change Levy (CCL). From 1 April 2026 CCL is 0.801p per kWh for both electricity and gas. Very low users, charities using energy for non-business purposes and supplies for domestic use pay 5% VAT and no CCL.

Key takeaways

Business energy is normally 20% VAT plus CCL.
CCL is 0.801p per kWh for electricity and gas from 1 April 2026.
Under 33 kWh electricity or 145 kWh gas a day means 5% VAT and no CCL.

The standard position

VAT: 20% on business electricity and gas.
Climate Change Levy: a tax per kWh, added before VAT. The main rate from 1 April 2026 is 0.801p per kWh for electricity and gas alike. It is set to rise to 0.827p from 1 April 2027.

When you pay 5% VAT

HMRC’s rules (VAT Notice 701/19) allow the reduced 5% rate for "qualifying use":

Low use (de minimis): no more than 33 kWh of electricity a day (about 1,000 kWh a month), or 145 kWh of gas a day (about 4,397 kWh a month).
Domestic use: for example, living accommodation.
Charity non-business use.

If 60% or more of a supply is for qualifying use, the whole supply can be charged at 5%. Below 60%, the qualifying share is charged at 5% and the rest at 20%.

When you don’t pay CCL

Supplies that qualify for the reduced VAT rate, such as low-use supplies under the de minimis limits, don’t pay CCL either. Businesses with a Climate Change Agreement pay a reduced CCL rate: 8% of the main rate for electricity and 11% for gas from 1 April 2026.

Check your bill

Find the VAT line. Is it 5% or 20%?
Divide your monthly kWh by the days in the bill period. Under 33 kWh a day (electricity) or 145 kWh a day (gas) should mean 5%.
If you think the rate is wrong, ask your supplier. For qualifying use other than low use, you will usually need to send them a VAT declaration.

Worked example

A café uses 900 kWh of electricity in a 30-day month: 30 kWh a day. That is under the 33 kWh limit, so it should pay 5% VAT and no CCL on that supply.

A workshop uses 2,400 kWh in a 30-day month: 80 kWh a day. It pays CCL on every kWh (2,400 × 0.801p = £19.22) and 20% VAT on the total.

Illustrative figures to show the maths, not real prices.

Sources

HMRC: VAT Notice 701/19, fuel and power (gov.uk)
HM Treasury/HMRC: Climate Change Levy rates from 1 April 2026 (gov.uk)
Ofgem: Energy advice for businesses (ofgem.gov.uk)

Questions

Can I reclaim the VAT on my energy bill?

If you’re VAT-registered and the energy is used for your business, you can normally reclaim it like other business VAT. Ask your accountant.

Is CCL included in my unit rate?

It is usually shown as a separate line on the bill. Check whether quotes you compare include or exclude it.

Does a green tariff avoid CCL?

No. CCL applies to business supplies whatever the tariff.

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VAT and Climate Change Levy on business energy