Is There a VAT On Water Bills? Water, a vital resource or a business opportunity? With ever-increasing taxes, a thought may arise: is there any charged VAT on water bills, and if so, how much are you eligible to pay? The water you wash dishes with, clean your car with, water your plants with—who knows, there might be some charges hidden in the bill. Not to worry, let’s satisfy these queries together!
So the VAT rate on water can be divided into two categories: households and businesses. As per the law set by the government of the UK, the VAT rate on water supplied to households is 0%; therefore, the water bill incurs no additional VAT.
In addition, reconnection and disconnection charges, emptying cesspools, septic tanks, sewer and drain cleaning, unblocking, or maintenance incur no additional VAT charges. Even though VAT is technically applied to these services, you, as a household owner, are not eligible for additional charges. On the other hand, heated water, distilled water, and mineral water may incur VAT charges.
Generally speaking, as a resident owner, you need not worry about such taxes, as, unlike some other essential utilities like electricity, cooking gas, and fuel, the VAT rates on water remain at a nice little zero.
In most places in the world, knowing the distinction between water supply and wastewater services is quite essential, as they are regarded as separate entities when added to the water bill. This is due to the fact that standard rates of VAT mainly apply to wastewater.
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This case, however, does not hold true for non-household owners, as they are charged for the water bill with VAT included. The usual businesses that apply to VAT fall into divisions 1-5 set by SIC (Standard Industry Classifications), as detailed on the Companies House SIC codes page<. Quite simply, these are codes that signify a company’s main activity.
The businesses that must pay vat on water rates include:
So, for business purposes, VAT on water bills may be applicable. This may depend on the nature of use and the volume of water that is consumed. Otherwise, the standard rate of 20% may apply. To ensure proper payment of VAT, businesses must inform their water supplier of their correct SIC code.
However, if you are unsure about the charges, or if you suspect that you are being wrongfully charged, feel free to consult a water management expert or HMRC (HM Revenue and Customs). So, unless your business falls into one of the categories stated above, you will not be charged VAT on water bills.
Thankfully, special businesses such as agriculture, public service, or some non-industrial activities are exempt and pay no VAT on water bills. They receive the same zero-rated treatment as household owners.
If your business is charged VAT on water bills, not all hope is lost. As you are eligible to recover the VAT charged by your water supplier as input VAT through your tax returns. This is the case only if you are VAT registered.
Metering: For homeowners, the water supply is typically unmetered, with a fixed charge depending on the property. However, some businesses and new housing development schemes might have meters installed, which may lead to variations for businesses.
Missed Tax Returns: In some cases, water suppliers might issue a combined bill including both fresh and wastewater services. So, for business owners, it might be beneficial to view the bill in detail.
Conclusion
Understanding VAT on water bills may seem like a hurdle at first glance, however, by keeping in mind how SIC codes work and breaking down the components of your bill, you can navigate through your bill quite easily.
As previously discussed, it is not a major concern for homeowners at all, provided the bill reflects the base prices for the services. However, businesses do need to assess where they stand according to the SIC codes and how to reclaim their water bill VAT.
By keeping oneself informed and utilizing the resources at hand, one can ensure they are being charged the correct amount on their bill. Keep in mind that clear water and having a clear understanding of VAT go hand in hand!.
Rían Doyle
I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.
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