I was having a chat with a parish last week about their experience of having an environmental energy audit. One of the things the inspector noticed was that on their energy bills the parish were paying VAT at the standard rate rather than the 5% charity rate. He also noted that they were paying the Climate Change Levy which they should be exempt. As a result, the parish were able to claim back several thousand pounds in incorrectly paid tax!
Whether your church is a registered charity or an excepted charity (not registered with the Charity Commission), all are eligible for a reduce rate of VAT on your fuel and power used for the purposes of charitable non-business activities. Churches are also exempt from the Climate Change Levy (CCL), a tax levied on non-domestic users to lower greenhouse gas emissions.
Here is how your parish can ensure that you are paying the correct rate of VAT, and how to claim a refund if you have been paying the standard VAT rate.
Check the rate you are currently paying
To find out the current rate of VAT that you are paying for gas and electricity, read through your latest energy bills. If VAT is being charged at the standard rate (20%), you need to apply for a reduction.
Work out if your church qualifies for a reduced rate
To qualify for a VAT reduction, you will need to calculate the percentage of consumption that qualifies for the reduced rate. If you have any non-charitable businesses running on your site you will need to factor this in. HMRC state in their guidance online that, “Although charities may not be deemed to have any business activities under other laws, the definition of business for VAT purposes is governed by specific rules and regulations.” Based on a helpful summary from EDF Energy, these are examples of ‘business activities’ in a place of worship:
- “Where any part of the premises are used for nonchurch purposes
- Where income is generated from hiring or renting out the facilities
- Where the premises are hosting fundraising activities, where goods or services are supplied in return for payment”
If 60% or more of the fuel supplied to your church is used in non-business activities, then you can pay the reduced rate of VAT on the whole supply. If less than 60% of the fuel used by your church is for charitable purposes, you can still claim the reduced rate of VAT (5%) on the qualifying part and the standard rate (20%) on the rest.
Apply for the reduced rate
To get VAT relief just complete a VAT certificate or declaration form which you can get from your supplier’s website. Having an energy bill to hand will help you complete the relevant details.
As evidence that your church is a charitable organisation, you can download a certificate from your church’s page on A Church Near You. Click on the ‘More information’ tab and then ‘Download certificate’ – you will then be asked to complete a short form and will be emailed the certificate as a PDF.
If your church has more than one energy supplier, you will have to contact each individually and complete separate declaration forms. Most suppliers will take two weeks to review your application after you have submitted the form.
Once you have had confirmation from your supplier that you will be charged the reduced rate, make sure to check your incoming bills to verify that this has been updated. You should also remind your supplier if you renew a contract with them.
Claim a rebate
You can claim a rebate from your supplier for the difference between the standard and reduced rate charged for up to four years. The process for being refunded any overpaid VAT will depend on your supplier, so start by talking to them. If your supplier does not have a formalised process, ask them to correct previous invoices and issue a credit note for the incorrect charges. Your supplier may be reluctant to do this but remember that this is no cost to them (as any VAT charged will go to HMRC).