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No plans to lower VAT on energy bills despite Brexit promises says Treasury

Richard Simmonds • Jan 19, 2021

Consumer hopes that Brexit would bring about VAT cuts on energy bills have been dashed after the Treasury said it has 'no plans' to introduce a cut, despite promises being made before the Brexit referendum. 

Broken Promise?

During the contentious referendum campaign back in 2016 the two major players on the leave side of the debate, Michael Gove and Boris Johnson promised to scrap VAT on energy bills. Prior to leaving the EU, the government was barred from making such a move by EU rules. 

Boris Johnson wrote before the referendum, 'When we vote to Leave, we will be able to scrap this unfair and damaging tax. It isn't right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.'

Now, the Treasury has announced that it has no plans to lower VAT on energy bills.

 "Although the Government keeps all taxes under review, there are no plans to change the current VAT treatment of domestic energy," said Jesse Norman, Financial Secretary to the Treasury.
With the economy facing immense challenges created by the Covid-19 pandemic calls for more consumer support has grown. 

"VAT is a tax on products that people choose to buy, rather than things they require, like household energy. It makes sense for domestic energy to be VAT-free, and it will help with the cost of living now that so many people are working from home," said Conservative MP Stephen McPartland.  

Would a VAT cut actually help consumers with their energy bills?

A VAT rate would help consumers struggling to pay their energy bills. VAT is charged at 5% on energy bills for both electricity and gas so its scrapping would reduce costs.


Businesses too would benefit as currently they are charged at a rate of 20% although some businesses get a reduced rate of 5% if they are small and use less than the de minimis threshold.  


The Treasury may be holding off on making changes to the VAT rate due to the massive economic strain caused by the Covid-19 pandemic and the costs associated with the government's drive to hit NetZero emissions targets.


Economists forecast that to hit the governments environmental targets; it will cost hundreds of millions of pounds with some even predicting it could cost a trillion pounds.


Also read: Ministers urged to do more as requests for energy bill assistance soar

Would Energy Suppliers benefit from no VAT?

Any change to the VAT rate on gas and electric would create short term disruption and expense to suppliers. They would need to ensure their billing system is set up correctly to provide accurate energy bills to their customers. However, in the long run, VAT's scrapping could make the energy billing process easier for suppliers and consumers alike. 

Using a CRM can help

Most Customer Relationship Management (CRM) systems can handle the implementation of VAT rate changes. Still, some can make the process far trickier than it needs to be, and some even have VAT rates hardcoded into them and aren't configurable.

 

Dyball's CRM has an entire section designed to make the process of implementing VAT rate changes quick and easy by allowing an energy supplier to apply the VAT change to the appropriate date ranges.

 

Our CRM supports both electricity and gas supplies through the same interface, making rate changes even more straightforward. This is done through our gas and electricity data flow management systems, GASMAN and REGMAN. They provide UK energy suppliers with data views and functionality, traditionally driven by market messaging systems. 

 

For more information about our CRM, get in touch with us today.


The Treasury may have dismissed a VAT reduction or scrappage for now, but that doesn't mean that it won't change its mind in the future. The government will be keen to show the benefits of Brexit to businesses and consumers alike, so the possibility of VAT being lowered or removed should not be ruled out entirely. 


Further Reading

British Gas recorded a 15% decline in electricity demand among UK business due to Covid 19 and more strike action on the way


Consumer complaints about Energy Billing rose in Q3 of 2020 says new Ofgem report


Ofgem considering Energy Bill hike to help ease pressure on Energy Suppliers


Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

 

Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.

Contact Us

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