The 60/40 rule: VAT on energy when your building has mixed use
Most places of worship qualify for a reduced rate of VAT on their gas and electricity, and for exemption from the Climate Change Levy. But many buildings are used for more than worship. A hall may be let for parties, a café may trade after services, or rooms may be hired out to local groups. When that happens, the question becomes how much of your energy use still qualifies.
Electricity is currently zero-rated
From 1 October 2026 to 31 March 2027, electricity that qualifies for the reduced rate is charged at 0% VAT instead of 5%. Gas remains at 5%. This applies in England, Scotland and Wales, but not Northern Ireland. The rules on what qualifies haven't changed, so a building that should be on the reduced rate but is still being charged 20% is now overpaying by the full 20% on its electricity.
What counts as qualifying use
Energy used for charitable non-business purposes qualifies. That includes worship, prayer meetings, free community activities, and the day-to-day running of the charity. Business activities do not qualify, even when the money raised supports the charity. Examples are letting the hall for a fee, running a café or shop, and hosting paid events.
How the 60% rule works
HMRC applies a simple test to each meter. If at least 60% of the energy supplied through it is for qualifying use, the whole supply is charged at the reduced rate (currently 0% for electricity and 5% for gas), with no Climate Change Levy. If qualifying use falls below 60%, the supply is split. The qualifying share is charged at the reduced rate, and the rest at the standard 20% with the levy added.
You can work out the split on any fair and reasonable basis: for example, the hours each space is used for each purpose, or the floor area involved. What matters is that the method is sensible and that you can explain it if asked.
Small users are covered automatically
Very small supplies are treated as reduced-rate regardless of use. This applies to electricity averaging no more than 33 kWh a day (about 1,000 kWh a month) and gas averaging no more than 145 kWh a day (about 4,397 kWh a month). The average is worked out for each billing period, so a site can qualify in some periods and not others. Small chapels and meeting rooms often fall within these limits.
Why it often goes wrong
The reduced rate is not applied automatically above these limits. Your supplier needs a VAT declaration from you stating the percentage of qualifying use. Without one, they charge 20% and add the levy. Declarations are also often lost when contracts change or suppliers switch, so a building that was correctly billed for years can quietly go back to the full rate.
If you have been overcharged
Overpaid VAT and levy can generally be reclaimed from your supplier for up to four years. We review your billing history, establish the correct qualifying percentage for each meter, and submit the declaration and refund claim on your behalf.
This article is general guidance based on the rules as at October 2026. It is not legal or tax advice.