The Prime Minister has announced that the VAT rate on qualifying electricity supplies will be reduced from 5% to 0% from October 2026 to March 2027.
What does that mean for charities and other non-profit organisations?
This could represent a significant saving for charities and non-profit bodies, particularly as many organisations are unable to recover most of their VAT costs.
The measure is currently limited to electricity, despite the 5% reduced rate generally applying to a wider range of fuel and power supplies. We expect further clarification from HMRC in due course.
Key considerations
- The electricity supply will generally need to be made directly to your organisation, rather than being recharged as part of a landlord's service charge.
- Several of our charity clients have discovered that they are being charged VAT at 20% on fuel and power when they may instead qualify for the reduced 5% rate. This can apply where premises fall within the domestic consumption thresholds, are treated as domestic for VAT purposes, or where some of the usage relates to non-business charitable activities.
- Organisations benefiting from the 5% (and temporary 0%) VAT rate should also qualify for relief from Climate Change Levy (CCL) providing additional savings on energy costs.
- It is important to ensure that suppliers are correctly applying the reduced rate to qualifying electricity supplies so that they can benefit from the temporary zero rate during the six-month period.
- Organisations using prepayment arrangements should consider whether any changes are appropriate to ensure they can legitimately maximise the VAT savings available.
While the temporary reduction is welcome, it also provides a timely opportunity for charities and non-profit organisations to review their fuel & power arrangements, to ensure that the correct VAT treatment is being applied and position themselves to take full advantage of the temporary zero-rating period.
For further guidance on the above, please get in touch with your usual Crowe UK contact, or contact Chris Dears on 0207 842 7150.
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