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What is the VAT on your business water bill?

If your business is connected to the water mains, then you are definitely receiving regular water bills, but have you ever considered if you’re paying VAT on your business water bill?

In this article, we have a look into what VAT is, if there is VAT on water bills, and how you can ensure you are paying the correct rate of VAT.

What is VAT?

VAT stands for value-added tax and is a consumption tax that is placed on a product at every stage of the supply chain where value is added.

Most people will be familiar with VAT being added at the standard rate of 20% to most products or services bought.

The amount of VAT that a business pays to HMRC is the VAT collected on their sales minus the VAT they have incurred in all their purchases.

Is there VAT on your business water bill?

The VAT added to business water bills usually applies to engineering, manufacturing, and construction businesses.

These businesses use water as a direct input during production, making it taxable according to the definition of VAT.

What types of businesses are charged VAT on their water bills?

The types of businesses that are charged VAT on their water bills are businesses that fall into the 1-5 divisions of the Standard Industry Classifications.

The top industries that fall into this category are:

Utilities
Construction
Chemical Production
Food Production
Mining
Textile Production

What is a SIC code?

SIC codes are a system for classifying all types of businesses with a five-digit code. It’s a system used globally by government agencies to classify industry areas.

Companies House discloses the SIC code and description in public company records in the “nature of business” section.

Which SIC code applies to my business?

There are 600 individual SIC classifications to choose from when deciding which code applies to your business.

Companies House has produced a searchable directory of SIC codes, which helps you find which code fits best.

Even if your company is dormant (99999) or non-trading (74990), there is an appropriate SIC code to choose from.

How can I ensure I’m paying the correct VAT for my business water rates?

If you think that VAT is not being treated correctly, we recommend contacting your current business water supplier to explain the nature of your business and the SIC code that best applies.

Your business water supplier will then be able to assess this on your behalf.

How much is VAT on my business water bill?

The VAT for all industrial companies listed above is set at 20%, which is charged at the standard rate.

Businesses that are charged VAT on their business water bills are able to recover the VAT charged by your water supplier as input VAT through their periodic VAT returns.

Will my business be charged VAT?

Your business will not be charged VAT on your business water bills unless it falls within the industrial business sector as defined in the Standard Industry Classifications, as explained in detail above.

For example, if your business is involved in engineering, manufacturing, and construction will you have to pay VAT.

If you think your supplier is incorrectly charging you VAT, we recommend that you contact your supplier’s customer services department.

Bill Validation

Business water bills can be complex, so at AquaSwitch, we offer a free bill validation service.

We review your recent water bills and recalculate your charges based on your area’s wholesale scheme.

Our experts will report any discrepancies noted in your billing, and any areas where historical rebates may be requested, and other recommendations to save money on your water supply.

Please refer to our guide for more information to help understand water rates for business.

How can I switch my business water supplier?

Here at AquaSwitch, we can assist you with switching your business water bills with ease.

The first step of the process is to compare business water suppliers so that you can compare your current water tariffs to those being offered by alternative providers.

What are the benefits of switching my business water supply?

Savings: By switching supplier, you can save up to 20% on your business water bills.
Improved Customer Service: Benefit from improved customer experience, tailored services, and simplified bills.
Efficiency: Find a supplier that will help you create a more water-efficient business.

Click here to switch business water supplier.

FAQ Section – VAT on business water bills.

Are business water rates VAT exempt or zero-rated?

Business water rates are considered ‘zero-rated supply’ for most businesses, which means that no VAT is charged on the water supply, but it still remains taxable in other ways.

To clarify, VAT exempt is when a service or good is exempt from all taxation.

Business water rates can be treated as a ‘standard-rated supply’ for businesses in the industrial sector.

Is there VAT on Welsh water bills?

The same rules apply in Wales as in the rest of the UK when it comes to VAT. Most businesses are not eligible for VAT unless they are in the industrial sector.

Please refer to our full guide on VAT for water bills above for more information.

Is there VAT on household water bills?

No, in the case of water supplies to homes, no VAT will be added to the bill.

The water industry for households works differently from the business water market. Homes receive bills without VAT for the water they use from their local water company.

Business energy comparison

Compare business energy suppliers today and save money on your current business rates. Energy suppliers encompass both the supply of both gas and electricity combined.

You can switch up to 12 months before your energy contract expires (dependent on the supplier). Simply use our 4-step comparison tool to get the latest rates.

Compare business electricity rates

To compare business electricity prices, simply jump to our postcode finder and begin the comparison. Follow the simple steps above to get cheaper business electricity prices.