Energy supplies to individual flats are always charged at 5%

In contrast to the supply contracts for individual flats, energy contracts covering the supplies to communal areas are classed as business contracts as the contracting party is almost always a company, as opposed to an individual resident.

As such, unless the usage level at a particular meter is below the 'de-minimis' threshold specified by HMRC (currently under 12,000 kWh per year for electricity and 52,764 kWh per year for gas), then suppliers will charge VAT @ 20% as default. In addition, they will charge an additional cost - Climate Change Levy - on top of the energy usage.

However, whilst electricity and gas can be supplied under business contract terms, HMRC actually determine VAT rates according to the use of the goods or services in question, not the nature of the contracting party (HMRC guidance).


In the case of blocks of flats therefore, the supply should be rated 5% as usage is for domestic purposes (although if a particular meter also covers commercial areas such as shops or offices then it should be apportioned accordingly).

In order to ensure that supplies are charged correctly, suppliers must be notified accordingly through completion of a VAT declaration. This is good practice even where supplies are low usage (and would otherwise qualify under the de-minimis ruling) as meters can be overestimated for a prolonged period thus attracting the higher rate otherwise.

What happens if a supplier has been billing on the wrong rate?

Where errors have been identified, fortunately it is possible to recover costs for upto 4 years, even if the supplier, managing agent or contracting party has changed in the meantime.

Thames Utility Brokers have considerable experience in this field and have successfully submitted retrospective claims on behalf of many customers regardless of the supplier in question. Recent cases have included identifying and recovering sums ranging from £4,000 to £50,000 at various blocks where we had been reviewing energy costs for the first time.

For all clients using our services going forward, declarations are submitted and logged on the account as a matter of course and invoices subsequently monitored for discrepancies.

Neil Woolfson is the Managing Director of Thames Utility Brokers

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