Mercedes Mullins
The VAT rate on heating fuel depends on the type of fuel and the purpose for which it is being used. For instance, if you use heating oil or gas oil (red diesel) to heat a commercial property, you will be charged VAT at 5% for orders up to 2,300 litres and 20% for orders exceeding 2,300 litres. On the other hand, if you are using heating fuel for a domestic property, the VAT rate is 5%. Additionally, if you supply fuel to a caravan park owner or the landlord of a qualifying residential accommodation, your supply is taxed at a reduced rate.
| Characteristics | Values |
|---|---|
| VAT on heating oil for a domestic property | 5% |
| VAT on heating oil for a commercial property (up to 2,300 litres) | 5% |
| VAT on heating oil for a commercial property (over 2,300 litres) | 20% |
| VAT on fuel oil burned in a furnace or used for heating | 9.78 pence per litre |
| Standard rate VAT on fuel | 20% |
| Reduced rate VAT on domestic heating fuel | 5% |
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What You'll Learn
Heating fuel for domestic vs. commercial properties
Heating fuel for domestic and commercial properties differs in several ways. Firstly, let's understand the distinction between domestic and commercial energy. Domestic energy refers to the energy supplied to private dwellings such as houses, flats, or other buildings used for permanent living and domestic purposes. The energy is typically used for heating, lighting, and cooking, and the contract is between the supplier and the person paying for utilities. On the other hand, commercial energy is supplied to non-domestic properties like shops, offices, restaurants, hospitals, and schools. The contract is between the business owner and the supplier, though a broker may be used.
Now, let's delve into the specifics of heating fuel for each type of property. For domestic properties, heating oil or gas oil (red diesel) is typically used, and the VAT is charged at 5%. This reduced VAT rate applies to quantities of up to 2,300 litres, and eligible residential accommodations include homes providing care for specific groups, such as the elderly or disabled. Residences with garages or subsidiary buildings a short distance away are also considered part of the same residential unit.
Conversely, for commercial properties, heating oil or gas oil used for heating is also subject to VAT. If the order quantity is up to 2,300 litres, the VAT is 5%. However, for orders exceeding 2,300 litres, the VAT increases to 20%. This distinction in VAT rates between domestic and commercial properties is a key difference, with commercial plans attracting additional taxes and levies.
It is worth noting that the heating systems themselves differ significantly between domestic and commercial properties. Commercial boilers have a much higher output range, typically starting from 250kW, to meet the heating and hot water needs of larger organisations. Domestic boilers, on the other hand, are generally above 70kW and can accommodate up to 15 radiators, catering to the needs of residential homes.
Additionally, the contract terms vary between domestic and commercial energy suppliers. Domestic contracts usually have a rolling term with no fixed end date, allowing customers to switch suppliers at any time, albeit with fluctuating rates. In contrast, commercial contracts are typically fixed-term, ranging from one to five years, with a constant unit rate. Early cancellation is generally not an option for businesses unless they vacate the premises.
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VAT rates for heating oil and red diesel
The VAT rates for heating oil and red diesel vary depending on the quantity supplied and the type of use. For quantities of 2,300 litres or less, heating oil and red diesel are subject to a reduced VAT rate of 5%. This reduced rate is applicable for both domestic and certain types of residential accommodation, such as homes providing care for the elderly, disabled individuals, or people with past or present dependence on substances or mental health issues. Garages used with houses and subsidiary buildings located nearby are also treated as part of the same residential unit.
However, for commercial deliveries of 2,301 litres or more, the VAT rate increases to 20%, irrespective of the purpose of use. It is important to note that the reduced VAT rate of 5% can be applied to quantities above 2,300 litres, but only if the supplier is certain that the supply is for domestic or eligible residential use.
In the case of red diesel, also known as 'rebated' red diesel, the 5% VAT rate is typically restricted to specific industry sectors, including agriculture, horticulture, fish farming, forestry, and rail transport. Sectors such as construction, mining, quarrying, manufacturing, haulage, and airport operations are not permitted to use red diesel and must consider switching to alternative fuels.
Additionally, certain oils that do not meet specific requirements, such as crude oil, heavy hydrocarbon oils, light hydrocarbon oils, lubricating oils, and lubricants, are standard-rated for VAT. The excise duty liability of oil is determined at the time of delivery or importation, and rebates may be claimed under certain conditions.
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VAT on fuel for landlords
The VAT rate on fuel and power for landlords depends on the type of accommodation and how it is supplied to the tenant.
Single supply of heated accommodation
If a landlord and tenant contract for a single supply of heated accommodation, it is taxed as a single supply of accommodation. If the landlord makes a fixed charge for supplies of gas or electricity or includes an amount in the rent to cover them, the payment is treated as part of the rent and is liable to VAT in the same way as the rest of the supply of accommodation.
Separate supply of fuel and power
If a landlord charges tenants specifically for their actual consumption of fuel and power, it is a separate transaction from the letting of the property. In this case, the landlord's provision of fuel and power is a separate and taxable sale to the tenant.
Reduced VAT rate
Fuel and power supplied to landlords of accommodation used for "qualifying purposes" are taxed at a reduced rate. Qualifying purposes include homes providing care for the elderly, disabled people, or people with past or present dependence on alcohol, drugs, or mental disorders. The reduced VAT rate also applies to fuel and power supplied to caravan park owners, managing agents, or residents' associations.
Standard VAT rate
In all other cases, supplies of fuel and power to landlords are taxed at the standard rate. This includes fuel and power supplied to hotels, inns, or similar establishments.
VAT on electricity for charging vehicles
Landlords who provide electricity for charging vehicles that are resold as separate taxable items are entitled to deduct input tax on the purchase of electricity. This also applies to costs for installation and subscriptions related to charging vehicles.
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VAT on fuel for caravan park owners
Caravan park owners are subject to different rates of VAT on the services they provide. If you supply fuel or power to a caravan park owner, your supply is taxed at a reduced rate. However, fuel and power supplied to hotels, inns, or similar establishments are standard-rated.
If the park owner can identify the actual consumption of electricity and gas per pitch through metering, the charge is considered a separate supply of electricity and gas, subject to VAT at a reduced rate. If the actual consumption cannot be identified, the charge made to the caravan owner follows the same VAT liability as the pitch fee, which is standard-rated for holiday parks and exempt for residential parks.
Charges for water and sewerage services are zero-rated for VAT if the actual consumption can be identified through metering. If not, any charge for water and sewerage follows the same VAT liability as the pitch fee, which is standard-rated for holiday parks. Optional hook-up charges for water and sewerage services for touring caravans or motorhomes are also zero-rated.
The charge made by parks for delivering, unloading, and siting caravans will typically be part of the 'consideration' and follow the VAT liability of the caravan, which is usually reduced or zero-rated. Holiday caravan park owners are liable to pay non-domestic business rates to the local authority, which are passed on to caravan owners and are standard-rated.
Any charge made or commission earned by the park owner for arranging insurance on behalf of a caravan owner is likely to be VAT-exempt, provided the caravan owner is the recipient of the insurance supply. Fees charged to reserve a pitch at a caravan park follow the VAT liability of the pitch fee, regardless of who the charge is made to.
Where park owners make charges for the general upkeep and maintenance of the park, such as grass cutting or road repairs, these are considered further pitch payments and follow the VAT liability of the pitch fee, which is standard-rated for holiday parks and exempt for residential parks. Specific repair and maintenance services provided to individual caravan owners, such as caravan repairs or window cleaning, are subject to VAT at the standard rate for both holiday and residential parks.
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VAT rates for different types of fuel
The rate of VAT on fuel depends on the type of fuel and its usage. In the UK, the standard flat rate for VAT on fuel is 20%. However, there are reduced rates for certain types of fuel and specific use cases.
For domestic heating fuel, such as heating oil, gas oil, or kerosene, the VAT rate is typically 5%. This reduced rate applies to quantities of up to 2,300 litres for domestic properties. If the quantity exceeds 2,300 litres, the VAT rate increases to 20%. It's important to note that oil suppliers and brokers are required to be Registered Dealers in Controlled Oils (RDCO) and must meet certain criteria set by HMRC.
For commercial properties, the VAT rate on heating fuel is also generally 5% for orders up to 2,300 litres. However, for orders exceeding 2,300 litres, the VAT rate increases to 20%. This applies to fuels such as heating oil, kerosene, and red diesel.
Additionally, certain types of residential accommodation, such as homes providing care for specific groups, may be eligible for the reduced VAT rate of 5% on heating fuel.
VAT rates also vary for different types of fuel beyond heating purposes. For example, the headline rate for standard petrol and diesel, biodiesel, and bioethanol includes fuel duty and VAT, resulting in a higher overall cost per litre. Other fuels, such as liquefied petroleum gas, natural gas used in vehicles, and fuel oil for heating, have different rates of fuel duty applied, which subsequently affects the overall cost, including VAT.
It's worth noting that businesses can reclaim VAT on fuel expenses, and the amount reclaimable depends on the type of vehicle and mileage allowance. For instance, VAT on fuel for car leases may be reclaimable up to 50%, and new cars used solely for business purposes may allow for full VAT reclamation.
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Frequently asked questions
The VAT on heating fuel depends on the type of fuel and how it is used. For domestic heating fuel, the VAT is 5%. For commercial heating fuel, the VAT is 5% for orders up to 2,300 litres and 20% for orders over 2,300 litres.
If the heating fuel is not used for a commercial or domestic property, the VAT rate will depend on the type of fuel. For example, the rate for 'fuel oil' burned in a furnace is 9.78 pence per litre, plus VAT.
If you are unsure whether to pay the commercial or domestic VAT rate on heating fuel, you should contact the supplier to determine the correct rate for your specific situation.
