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VAT on business water bills

Are you paying VAT on you business water bills?

Water bills for most businesses comprise charges for water and charges for wastewater. The VAT rules for water and wastewater are not the same. Water charges can be subject to VAT at the standard rate, whereas there is no VAT on wastewater or trade effluent charges.

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.

In essence, most industrial businesses will be subject to VAT on their water bill and those that are non-industrial will not.

Industries that are typically subject to VAT on their water bills include:

Incorrectly paying VAT on your water bill?

VAT on your supply

Whether you pay VAT on water bills for business depends on your Standard Industrial Classification (SIC) code. VAT will be charged on your water supply if your main business activity falls into one of the following five divisions:

  • 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

VAT exemptions

You will not pay VAT on your water supply if your main business activity falls into one of the following five divisions:

  • 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 organisation.

Castle Water ensures that you are correctly charged VAT on water 

Although for most businesses the Standard Industrial Classification activity codes were updated to a 5-digit number in 2007, HMRC has chosen the 1980 3-digit Standard Industrial Classification activity codes as a method of identifying which groups of customers must be charged VAT on their water services.

HM Revenue and Customs requires Castle Water to ensure that we are correctly charging VAT on water services. If you do not inform us of your SIC code, we are required by HMRC to charge VAT by default on your water services.

Your SIC code is used to see if we must charge VAT on the water we supply to you, however, different rules apply to our other charges. Our wastewater charges are normally ‘Zero Rated’, but VAT may be applied to our charges for making new water and sewer connections, but this depends on the type of building that we are supplying.

If you have several sites, the SIC code for your largest business activity must be applied to all of your sites, including domestic properties. Please do not change the SIC code for the business activity conducted at each site.

If you think your business is being wrongly charged VAT on your water bills, you need to tell your water supplier your SIC code. Not impressed with your current water supplier? Many people don’t know how easy it is to switch – which is always an option. In any case, make sure you are paying the right amount of VAT.

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