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What is the VAT on your business water bill?

If your business is linked to the water mains, you’re likely receiving routine water invoices. However, have you ever contemplated whether Value Added Tax (VAT) is applied to your commercial water bills?

This article explains VAT and how it is included in water and wastewater bills for businesses. It also guides ensuring that you pay the correct VAT rate.

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What is VAT?

VAT is a tax on a product at each step of the supply chain where value is added.

Many individuals are acquainted with VAT being applied at the standard rate of 20% to the majority of products or services they purchase.

A business’s VAT to HMRC (Her Majesty’s Revenue and Customs) is calculated by subtracting the VAT they have incurred in all their purchases from the VAT they have collected on their sales.

To find out more about the VAT on your business energy bills, check out our guide.

Are you charged VAT on your business water bill?

The VAT that is typically added to commercial water bills is primarily relevant to engineering, manufacturing, and construction enterprises.

These businesses consider water as a direct input in their production processes, which aligns with the VAT’s definition of taxable items.

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Businesses subject to paying VAT on their water bills typically belong to the 1-5 divisions of Standard Industry Classifications. The main industries in this category include:

  • Utilities
  • Construction
  • Chemical Production
  • Food Production
  • Mining
  • Textile Production
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What are SIC codes?

SIC codes are a five-digit standard industry classification name system used worldwide to categorize various types of businesses. Government agencies utilize this system to classify industry sectors.

The “nature of business” section of public company records at Companies House incorporates the SIC code along with its explanation.

SIC Codes Subject to VAT

Businesses that fall under the subsequent categories are required to pay VAT on their business water bill:

  • 01 – Industries related to energy and water supply
  • 02 – Mining of minerals and ores excluding fuels; production of metals, mineral products, and chemicals
  • 03 – Industries related to metal goods, engineering, and vehicles. Production of metal goods not classified elsewhere
  • 04 – Other manufacturing sectors
  • 05 – Construction

SIC Codes Exempt from VAT

The remaining SIC categories that are not required to pay VAT include:

  • 05 – Agriculture, forestry, and fishing
  • 06 – Distribution, hotels, catering, and repair services
  • 07 – Transport and communication
  • 08 – Banking, finance, insurance, business services, and leasing
  • 9 – Other services (including education and other public services)
  • 10 – Diplomatic representation, international organisation
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Which SIC code applies to your business?

There are 600 SIC classifications available to assist you in determining the most suitable code for your business.

Companies House offers a user-friendly directory of SIC codes that simplifies the process of finding the appropriate code.

Even if your company is dormant (99999) or not actively trading (74990), there is a relevant SIC code available for selection.

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Are you paying the correct VAT for your business water rates?

If you believe that VAT is not being handled correctly, we advise reaching out to your current business water provider and explaining your business type along with the most appropriate SIC code.

Your business water supplier can then evaluate unnecessary water consumption and address this matter on your behalf.

What is the amount of VAT on your commercial water bill?

The VAT rate for all the industrial companies mentioned earlier is fixed at 20%, which is applied at the standard rate.

Businesses subject to paying VAT on their commercial water bills have the opportunity to reclaim the VAT charged by their commercial water services supplier as input VAT when filing their regular VAT returns.

Will your business be charged VAT?

Your business won’t incur VAT charges on your water bills or sewerage services unless it falls within the industrial business sector, as elaborated upon earlier in this explanation.

For instance, if your business operates in engineering, manufacturing, or construction, you will be required to pay VAT.

If you suspect that your supplier is incorrectly applying your business to pay VAT charges, we recommend getting in touch with your supplier’s customer service department for resolution.

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Bill Validation

Navigating business water bills can be challenging. That’s why, at Business Energy Comparison, we provide a complimentary bill validation service.

We thoroughly examine your most recent water invoices and recompute your costs in alignment with your region’s wholesale scheme. Our team of experts will identify any inconsistencies in your water meter billing, highlight potential opportunities for historical rebates, and offer practical recommendations to reduce your water supply expenses.

How to switch business water supplier?

At Business Energy Comparison, we specialize in simplifying the process of transitioning your business water billing.

The initial phase of this process involves choosing a business water supplier, allowing you to assess your current water rates in comparison to those offered by alternative providers.

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What are the advantages of changing your commercial water provider?

Benefits of switching your business water supplier include:

  1. Savings: Save up to 20% on your water bills.
  2. Improved Customer Service: Enjoy better customer service, customized offerings, and simplified billing.
  3. Efficiency: Partner with a supplier to enhance your water efficiency.

To start your business water comparison, get in touch today.

Business Energy Comparison

If you’re looking to save money on your current business energy costs, start comparing business energy suppliers today. Our services cover both gas and electricity supply.

Depending on the provider, you have the option to start the transition process up to 12 months before the expiration of your energy agreement.

Compare Business Electricity Rates

To evaluate business electricity rates, use our postcode search tool and start the comparison procedure. Follow the straightforward steps outlined above to quickly compare business electricity rates.

Business Gas Comparison

Comparing business gas rates is a straightforward process. Use our postcode finder to initiate the switch today.

Switch Business Water Suppliers

Switch your business water supplier today. Get started by entering your postcode, and start switching business water suppliers, within minutes.

Start your journey and compare business gas and electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

Frequently Asked Questions

Does your business have to pay VAT on wastewater?

No, VAT is only charged on fresh water.

Are business water rates VAT-exempt or zero-rated?

For most businesses, business water rates are classified as a ‘zero-rated supply,’ implying that VAT is not applied to the water supply. However, it remains subject to taxation through other means.

To clarify, being VAT-exempt means that a service or product is entirely free from taxation.

For businesses in the industrial sector, business water rates may be categorized as a ‘standard-rated supply of wastewater services.’

Is there VAT on Welsh water bills?

In Wales, VAT rules align with those in the rest of the UK. Typically, businesses are not subject to pay VAT unless they operate in the industrial sector.

Is there VAT on household water bills?

When it comes to water supplies for residential properties, VAT is not applied to the bill.

The residential water industry operates differently from the business water market. Households receive bills from their local water company without any VAT charges for the water they consume.

What to do if you think your business water costs are incorrect?

If you suspect that you’re facing incorrect charges, the most effective course of action is to identify your business’s primary SIC code and inform us. Please share as much information as possible through our general enquiry form, and we will promptly respond to your inquiry.