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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

• Zero Rated

• 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:

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• 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:

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• 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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Zero Rated Supplies of Energy Saving Materials from 1 May 2023 to 31 March 2027

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The relief applies to the services of installing energy-saving materials in residential accommodation and charitable buildings. For example, where a customer employs a business to install energy-saving materials that the customer purchased directly from a retailer.

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The relief also applies to the supply of energy-saving materials by the person who installs those materials in residential accommodation and charitable buildings. For example, where a customer employs a business to supply and install energy-saving materials.

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However, if you supply energy-saving materials without installing them your supply will be standard-rated. For example, the sale of energy-saving materials by a retailer is always standard-rated.

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Residential Accommodation 

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The relief for energy-saving materials applies to installations in residential accommodation. This includes:

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• houses, blocks of flats or other dwellings

• armed forces residential accommodation

• children’s homes

• homes providing care for the elderly, disabled people, or people who suffer or have suffered from drug or alcohol dependency or mental disorder

• hospices

• institutions that are the sole or main residence of at least 90% of their residents

• monasteries, nunneries and similar religious communities

• residential accommodation for students or pupils

• self-catering holiday accommodation

• caravans used as a place of permanent habitation (such as a park home or static caravans sited on a permanent residential caravan park)

• houseboats that are designed or adapted for permanent habitation and have no means of self-propulsion, or other boats which are used as a person’s sole or main residence, such as canal boats and Dutch barges, on which the boat owner pays Council Tax or domestic rates

 

Note - The standard rate applies to the installation of energy-saving materials in hospitals, prisons or similar institutions, hotels or inns or similar establishments.

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Buildings intended solely for relevant charitable purposes

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From 1 February 2024, the relief has been extended to include buildings intended for use solely for a relevant charitable purpose.

Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely:

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• otherwise than in the course or furtherance of a business

• as a village hall or similarly in providing social or recreational facilities for a local community

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If you install energy-saving materials in such buildings, you should take reasonable steps to ensure that your customer will use the building for a relevant charitable purpose and retain the appropriate documentation. For example, you might ask your customer to provide you with a letter confirming the intended use of the building.

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Zero Rated Supplies​​

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• Draught Stripping - strips that are fixed around windows, interior and exterior doors, and loft hatches to reduce draughts.

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• Insulation - meaning materials that are designed and installed because of their insulating qualities and includes insulation for walls, floor, ceilings, roofs or lofts, water tanks, pipes or other plumbing fittings. Note - the relief does not apply to products such as curtains and carpets which are not usually installed simply as insulation.

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• Solar Panels - including all systems that are installed in, or on the site of, a building and that are solar collectors such as evacuated tube or flat plate systems, together with associated pipework and equipment, such as circulation systems, pump, storage cylinder, control panel and heat exchanger, photovoltaic (PV) panels with cabling, control panel and AC/DC inverter.

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• Installation of Wind Turbines in residential accommodation from 1 May 2023 (and in charitable buildings from 1 February 2024) to 31 March 2027 is zero-rated. This includes the installation of all equipment essential to the operation of wind turbines, including mounting poles, electrical cables, battery banks and voltage controllers. After 31 March 2027, the reduced rate will apply to installations in residential accommodation and buildings used solely for a relevant charitable purpose in the United Kingdom.

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• Water Turbines - from 1 May 2023 to 31 March 2027, the installation in residential accommodation, of water turbines, together with the installation of all equipment essential to the operation of water turbines, including electrical cables, battery banks and voltage controllers is zero-rated.  From 1 February 2024 to 31 March 2027, the installation of water turbines, in buildings used solely for a relevant charitable purpose is zero-rated. This includes the installation of all equipment essential to the operation of water turbines, including electrical cables, battery banks and voltage controllers.  After 31 March 2027, the reduced rate will apply to installations in the United Kingdom.

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• Ground source heat pumps - benefit from the zero rate of VAT. These transfer energy from the natural heat stored in the earth to heat the home and domestic hot water. They can also be used to augment existing heating systems in the same way as solar panels.  From 1 February 2024 to 31 March 2027, the relief also includes preparatory work that is necessary for the installation of a ground source heat pump. The term refers to groundworks, or dredging of a body of water, carried out to install pipework or other equipment necessary for the operation of a ground source heat pump.

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• Air Source Heat Pumps - use the air as a source of heat. They absorb heat from the outside or surrounding air and transfer that into useable heat in the home for space or water heating, or both.  Fixed air source heat pumps can be reversed so that they can draw heat from inside a building, thus providing cooling during the summer as well as indoor heating for colder periods of the year.  Only air source heat pumps that are permanently fixed and are not portable or moveable qualifies as energy-saving materials.  HMRC’s understanding is that most air conditioning units are air source heat pumps. However, in cases of doubt, deciding if any particular product is to be treated as an air source heat pump will depend on the facts of each case.

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• Micro Combined Heat and Power Units - These produce heat and hot water but, in addition, they also generate electricity.

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• Wood-Fuelled Boilers - These are boilers designed to be fuelled solely by wood (including wood chips and pellets), straw or similar vegetal matter.  Some boilers need hoppers to feed the fuel into the boiler. Where a hopper is integral to the installation of the boiler it’s included within the scope of the reduced rate in Northern Ireland and zero rate in Great Britain.  The standard rate applies to installations of ‘multi-fuel’ or ‘dual-fuel’ boilers which are designed to burn other non-renewable fuels such as coal or oil as well as wood. Stand-alone wood-burning stoves are also standard-rated.  Note - The construction or conversion of buildings or extensions for use as log or fuel stores is standard-rated.

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• Water Source Heat Pumps - These transfer energy from natural heat stored in a body of water. They can also be used to augment existing heating systems in the same way as solar panels.  From 1 February 2024, the supply of dredging of a body of water, in order to install pipework, or other equipment, necessary for the operation of a water source heat pump, qualifies for the zero rate.  Where such dredging is carried out by the installer of a water source heat pump (at the same time as the installation) they normally fall to be ancillary and form part of a single zero-rated supply.

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• Batteries for storing energy converted from electricity - From 1 February 2024, electrical storage batteries installed in residential accommodation or buildings intended for use solely for a relevant charitable purpose qualifies for the temporary zero rate. These include the retrofitting of a battery for storing electricity generated by one or more of the microgeneration systems including solar panels, wind turbines and water turbines (listed above), batteries installed as part of the installation of a microgeneration system normally fall to be ancillary and form part of a single zero-rated supply, the installation of a standalone battery for storing electricity from the grid (the mains electricity), the installation of a battery for storing electricity from one or more of the microgeneration systems and from the grid.

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• Smart diverters - From 1 February 2024, the retrofitting of a smart diverter to one or more of the microgeneration systems installed in residential accommodation or buildings intended for use solely for a relevant charitable purpose qualifies for the temporary zero rate.  A smart diverter automatically diverts electricity generated by one or more microgeneration systems to electrical appliances in the accommodation or building, including other microgeneration systems such as ground and air source heat pumps.  Where a smart diverter is fitted as part of the installation of a microgeneration system it will normally fall to be ancillary and form part of a single zero-rated supply.

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• Other Energy Efficient Products The installation of all other energy-efficient products, such as energy-efficient boilers , secondary or double glazing, low-emissivity glass, or energy-efficient fridge freezers, are Standard-Rated, unless grant funded and in which case maybe Zero Rated.

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For more information read - (Energy-saving materials and heating equipment (VAT Notice 708/6))

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Grant-Funded Installations of Heating Equipment 

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Reduced-Rated Installations

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The reduced rate applies to the grant-funded installation of certain heating appliances, central heating and renewable source systems in the sole or main residence of a qualifying person.

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This includes the price of the equipment itself.

The reduced rate only applies to the extent that the supply is grant-funded (read section 3.9). However, if the supply is also an installation of energy-saving materials in residential accommodation, from 1 May 2023 to 31 March 2027, it qualifies for the zero rate, as explained in section 2.

If you supply heating equipment without installing them your supply is standard-rated, even if it’s grant-funded.

  

A qualifying person is a person who receives a grant for the installation of heating appliances (read section 3.2) or for the installation, maintenance or repair of a central heating system (read section3.3) or for a renewable source heating system (read section 3.4) and either:

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• is aged 60 or over

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• receives one or more of the following benefits:​​

  • Disability Living Allowance

  • Disablement Pension

  • Housing Benefit

  • Income-based Jobseeker’s Allowance

  • Income Support

  • War Disablement Pension

  • Working Tax Credit

• Council Tax Benefit

• Child Tax Credit (other than the family element)

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If there are 2 or more people living in a dwelling, and one person is a qualifying person and the other residents are not, the reduced rate will apply if the supply is to the qualifying person, and they’re eligible for the grant. 

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Heating appliances

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The reduced rate applies to the installation of:

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• closed solid fuel fire cassettes

• electric dual immersion water heaters with factory-insulated hot water tanks

• electric storage heaters

• gas-fired boilers

• gas room heaters with thermostatic controls

• oil-fired boilers

• radiators

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Central Heating Systems

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The reduced rate applies to the installation, repair and maintenance of a boiler, radiators, pipework and controls forming a central heating system.

This includes micro combined heat and power systems, which are heating systems that also generate electricity.

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The reduced rate includes repairs and replacements of such equipment, whether or not the original system was installed under a relevant grant-funded scheme.

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Renewable source heating systems

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The reduced rate applies to the installation, repair and maintenance of renewable source heating systems.

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This means space or water heating systems which use energy from:

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• renewable sources, including solar, wind and hydroelectric power

• near renewable sources, including ground and air heat

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Connection or Reconnection to the Mains Gas Supply

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Where a qualifying person (see section 3.8) has been disconnected from the mains and re-connection is paid for under a grant scheme, that reconnection is eligible for the reduced rate.

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Leasing Arrangements

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Under some grant-funded schemes, a leasing arrangement may be used to help fund the installation of a central heating system. Where this happens, the installer will install the central heating system as usual, but they’ll sell the boiler and radiators to a leasing company. This supply is standard-rated.

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The leasing company, which will then own the goods, will make an annual lease charge to the qualifying person, which will be paid by grant funding. This supply is taxed at the reduced rate.

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Where a leasing arrangement is used to help fund the installation of a central heating system, the following 2 payments may become due (besides the lease charge):

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• termination fee — this is payable by the qualifying person or their landlord if the qualifying person moves to a new house during the 7-year lease period

• end of lease payment — the qualifying person must make a final payment to the lease company at the end of the lease period

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Both of these are further payments for the lease of the equipment and are eligible for the reduced rate.

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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

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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:

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• 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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Climate Change Levy Reliefs and Special Treatments

 

GOV.UK

https://www.gov.uk › government › publications › exci...

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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

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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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End User Exclusions when supplying to Public Bodies ​

 

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

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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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