You may have been overpaying the VAT on and unnecessarily paying the Climate Change Levy on your church’s electricity and gas prices for years. But how do you find out? And, when planning for the coming years, how can you reduce the amount your church is paying for its energy and protect the environment?
If you’re responsible for your church electricity and church gas prices and you want to free up more of your budget, in this article we cover:
- why do churches pay so much for their energy
- what’s the current situation with VAT and churches
- the VAT you pay on your church’s gas and electricity
- the reduced rate of 5% VAT on gas and electricity – does your church qualify?
- if you have been overcharged VAT, how do you stop it?
- how do you get back any VAT you’ve been overcharged?
- your church and the Climate Change Levy
- in a time of environmental concern, can you get green gas and electricity for your church?
- benefit from the most competitive church electricity and church gas prices
Why are church energy prices so high?
The size, layout, and insulation qualities of a church are the major factors behind why churches pay so much for their electricity and gas. In a recent survey, an average church’s annual energy bill was found to be nearly ten times that of an average British home.
Churches are at the centre of our community and our social fabric. In addition to worship, they’re used for so much more by the people who live nearby and each additional hour that your church is being used contributes to higher energy bills.
Every support group meeting, charity drive, new mums’ group meeting, choir practice, Christening, funeral, and wedding adds incrementally to your overall power consumption every year.
What’s the situation regarding churches and VAT?
People and companies have to register for VAT when the value of the goods and services they sell which attract VAT exceed £85,000 in a year. As a rule, churches in the main do not sell any goods or services on which VAT can be charged so the case for registering is a difficult one to make.
Most church accountants recommend that you do not register your church for VAT purposes to claim back expenses incurred on activities like the renting of rooms in other buildings to hold church activities. Did you know that, as a church, you have a legal right to stop a landlord from making a charge for VAT on their space? If not, talk to your accountant about it.
VAT on your church’s gas and electricity
You may be aware that any VAT-registered business or person can claim back the VAT they pay on goods and services on their (usually) quarterly return. One thing that you might not know is that VAT charged on business gas and electricity cannot be claimed back. And if businesses can’t claim it back, neither can churches.
Churches and the reduced rate of 5% VAT rate on gas and electricity
VAT on business energy for churches is quite complicated so we’re going to try to put it in the simplest possible terms.
Your church will likely engage in two types of activity – charitable activities and business activities. HMRC class business activities as charging for rooms within the church for example.
Before contacting your energy supplier about the reduction of the VAT from 20% to 5%, you need to be sure that the charitable activity in your church contributes to at least 60% of the energy use of your church.
What should I do if my church has overpaid?
In this instance, ask your supplier to charge you 5% on 60% of your supply and 20% on the remainder. Please note that advice on this subject does vary and you should speak with an accountant prior to making a claim.
Backdating my church’s energy VAT?
Your church can apply for VAT relief going back up to 4 years using a VAT declaration form – ask your current supplier to send you one over. If, upon receipt, you are unsure how to fill it in, you may wish to speak to a customer services advisor working for your supplier or contact your Church’s accounting department for advice and guidance.
My church and the Climate Change Levy
Reducing the amount you pay on VAT will make an immediate and significant difference to your church’s cash flow. Of further interest to you might be the fact that your church will also likely qualify for complete exemption from the Climate Change Levy.
The Climate Change Levy is charged on every kWh of electricity and gas used by your church at the following levels:
| Rate – 1 April 2020 | Rate – 1 April 2021 | |
| Electricity | £0.00811 per KWh | £0.00775 per KWh |
| Gas | £0.00406 per KWh | £0.00465 per KWh |
| LPG | £0.02175 per kilogram | £0.02175 per kilogram |
When arranging the application of the correct level of VAT on your energy bills, make sure that they also refrain from charging you the Climate Change Levy from this point onwards too.
Did you know that the Climate Change Levy scheme may also deliver discounts on your church’s energy spend? To qualify, you have to agree a plan of action to reduce your consumption – this is called a climate change agreement.
What are the measures you could take to reduce energy consumption and your annual expenditure on gas and electricity?
A switch from electric heating to gas heating is a great start although very difficult in older and protected churches. Improving insulation and ventilation around doors and windows will also stop temperatures dropping dramatically in your church as will finding ways to keep out cold drafts.
Smart meters are growing in popularity and they allow you to better understand how and when energy is being used in your church. For an additional revenue raising opportunity, you may wish to speak with a provider about receiving a “thank you” payment for every parishioner who signs up for energy for their home and/or business.
If you do sign a climate change agreement, expect the following discounts on its gas, electricity, and LPG bills:
| CCA – 1 April 2020 | CCA – 1 April 2021 | |
| Electricity | 92% | 92% |
| Gas | 81% | 83% |
| LPG | 77% | 77% |
Can I get green energy for my church?
More than 5,500 churches right across the spectrum have now switched to renewable green gas and electricity. More than £5m is now being spent with green suppliers through a pooled buying scheme that, prior to the campaign, was being spent with electricity and gas generators using damaging fossil fuels.
But so far, that’s just 5,500 churches out of a total of 50,700 Christian churches in the UK. It’s encouraging progress but there is still some distance left to travel so that the entire Christian family of places of worship has fully gone green.
Your current supplier may have a green option available that they could quote you on. It may however be better to choose a 100% renewable supplier of gas and electricity. If you’re wondering how to switch supplier, we cover that at the end of this article.
Examples of the types of charities and organisations which qualify for the 5% rate
It’s not just churches who can benefit from the waiving of the Climate Change Levy and the reduction of VAT charged on bills to 5%. The following organisations may also be able to claim:
- academy schools
- care homes
- charities
- community centres
- free schools
- monasteries
- nunneries
- non-profits
- self-catering holiday accommodation
- sports clubs
- student accommodation
- village halls
Take action
Please get in touch with your existing supplier today and ask them about both the VAT they’ve been charging you and the Climate Change Levy.
If you have been incorrectly billed, it’s OK to express your displeasure with the customer services rep at the company because the sales rep or broker who signed your church up in the first place did not ask you the right questions. And it’s their failure to ask the right questions which means you’ve been paying too much for your church’s gas and electricity while you’ve been in contract with them.
Remember that you don’t have to switch supplier for these benefits – you can stay with exactly the same one you have now.
Not many people know this but there is intense competition among suppliers and brokers to provide gas and electricity to churches. This is because, as we mentioned earlier, the amount of money you spend each year making sure your church has light and heat is much greater in comparison to a British home.
It may be time to shop around to see if one of these competitors can offer you a better deal than you have now. You can search out specialist suppliers online however some of them only offer their services through brokers.
If you want one of our team to approach specialist church suppliers on our panel to see what the best price and the best terms they can offer you are, please fill out the form at the top of the page. We’ll get back to you with 3-4 quotes – our service is completely free of charge and you don’t have to take up any of the offers we find on behalf of your church.