What the 2025 Budget Means for Your Business Energy Costs

The recent Budget included some big announcements for households, but much less for businesses. While domestic customers are expected to see an annual £150 reduction in their bills from April 2026, this won’t apply to commercial energy. The saving comes from removing certain policy costs from household bills, so business energy users will not see the same reduction. For a look at what was expected ahead of the announcement, read our guide to what the Autumn Budget 2025 might bring for businesses.

 

For organisations, the main change to be aware of is the upcoming increase to the Climate Change Levy (CCL) from April 2026. CCL rates will rise in line with inflation, so most businesses will see a gradual increase in the tax charged on their energy use. The government is also continuing the Climate Change Agreements (CCA) scheme for energy-intensive industries, offering significant CCL discounts to businesses that qualify and meet efficiency targets.

In short, there’s no new general support for businesses, but there are long-standing reliefs and reduced rates that many organisations overlook.

VAT on Business Energy: When the 5 Percent Rate Applies

Most commercial premises are charged the standard 20 percent VAT on energy. However, some types of sites can legitimately be charged the reduced 5 percent rate:

Domestic or Low-Usage Sites

Properties with a residential element – such as care homes, flats above shops, certain student accommodation – may qualify for the lower rate. Very low usage levels can also qualify under HMRC’s “de minimis” rules.

Charities and Not-for-Profit Organisations

Charities may be eligible for 5 percent VAT when energy is used for non-business charitable activities or certain types of residential care. Depending on how the energy is used, the whole supply or part of it may qualify.

The Climate Change Levy (CCL): Who Should Pay It?

CCL is an evnironmental tax applied to most non-domestic electricity, gas and solid fuel.

CCL normally applies when:

• Energy is used for business activity.
• The premises do not qualify as domestic or charitable use.

It may be reduced or removed when:

• A charity uses energy for non-business or residential purposes.
• A business operates in an energy-intensive sector and has a CCA.
• The premises qualify as domestic or meet low-usage thresholds.

Many organisations are unaware they fall into one of these categories, which means they may be paying more than necessary.

Questions Worth Considering

You may be entitled to reduced VAT or CCL relief if any of the following apply:

• Are you a charity or not-for-profit organisation?
• Is most of your energy used for non-business or residential activity?
• Is your site domestic or partly residential?
• Is your usage below HMRC’s “de minimis” limits?
• Does your business operate in an energy-intensive sector?

If any of these sound relevant, it may be worth reviewing how your energy is currently charged.

Why This Matters

Understanding how VAT and CCL should be applied can help ensure you’re not overpaying on your energy bills. Some organisations discover they’ve been charged incorrectly and are able to correct things going forward. In certain cases, suppliers may allow historical adjustments.