Is there VAT on a business water bill?

Whether or not your business is charged VAT on water usage depends on your Standard Industrial Classification (SIC) code.

SIC codes are used by government bodies such as Companies House and the Office for National Statistics to systematically identify and categorise the principal business activities of limited companies.

• Industrial divisions
• Non-VAT paying divisions
• How to avoid incorrect VAT charges
• VAT charges for wastewater services

The codes reflect the activities of each company, and businesses are grouped into trades or sections with similar classifications. Most companies only need one SIC code, but some may need many, depending on the complexity of their business. In these cases, the main SIC code will be used to assess if VAT is charged.

In essence, if you run a non-industrial business, you could be exempt from paying VAT on your water supply. If you run an industrial company, whether you will pay VAT on your commercial water bill depends on your main business activities as determined by your SIC code. VAT is charged at the standard rate of 20%.

Industrial divisions

There are several industrial divisions where VAT is payable on business water bills. These are:

• Division 1 – Energy and water supply industries
• Division 2 – Extraction of minerals and ores other than fuels; manufacture of metals, mineral products, and chemicals
• Division 3 – Metal goods, engineering, and vehicle industries. Manufacture of metal goods not elsewhere specified
• Division 4 – Other manufacturing industries
• Division 5 – Construction

Non-VAT paying divisions

The other SIC divisions are exempt from paying VAT. These are:

• Division 0 – Agriculture, forestry, and fishing
• Division 6 – Distribution, hotels, catering, and repairs
• Division 7 – Transport and communication
• Division 8 – Banking, finance, insurance, business services, and leasing
• Division 9 – Other services (including education and other public services)Division 000 – Diplomatic representation, international organisations, allied

How to avoid incorrect VAT charges

To ensure you’re paying the correct VAT charges on your business water bills, let your business water retailer know your SIC code. If you do not inform your retailer of your SIC code, whatever your business, they will be required by law to charge VAT on your commercial water services by default.

VAT charges for wastewater services

Our wastewater services are zero-rated for VAT. However, we may be required to apply VAT for new water and wastewater connections depending on the type of building being supplied.

If you would like more information and advice about VAT on commercial water supplies, please feel free to contact us using our 5-star webchat service.