vat question

VAT charged on energy bills

VAT Question

My client incurs VAT on electricity that they use in their business. They have read on several websites that VAT incurred on supplies of energy cannot be recovered. At least one such website claims that VAT charged on your energy bills can be claimed when you work from home, but this only applies to energy you used for domestic purposes and not for commercial usage. Is this correct?

VAT Answer

VAT incurred on utility supplies including gas and electricity can be claimed back as Input Tax subject to the normal rules for input tax recovery. Input Tax can be recovered providing that the supply has a direct and immediate link to the taxable activities which are carried out by the business.

Where there is an element of non-business use within the electricity supply, Input Tax recovery should be apportioned using any method which produces a fair and reasonable result.

Where a business makes a mixture of taxable and exempt supplies, Input Tax on the electricity bill can be recovered subject to the partial exemption rules.

If the business uses the Flat Rate Scheme to account for VAT, it cannot claim VAT on the supplies received, as the supply of gas or electricity are not capital expenditure goods for the purpose of the Flat Rate Scheme.

Finally, VAT cannot be claimed back on energy supplies which are used solely for a domestic (i.e., non-business) purpose as there is no direct and immediate link to taxable supplies.

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