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HMRC internal manual

VAT Fuel and Power

HM Revenue & Customs
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Scope of the reduced rate: apportionment of supplies partly for qualifying use: certificates


It is the supplier’s responsibility to ensure that tax is charged at the appropriate rate. But in many cases the supplier will not be in a position to determine the extent of qualifying use. We therefore accept that the customer may give the supplier a certificate to evidence the extent of qualifying use.

Customer certificates are the usual way of evidencing qualifying use but are not legally required. The absence of a certificate does not therefore preclude reduced rating, provided that you are satisfied with any alternative evidence produced.

Suppliers are not obliged to request a certificate. The default position for many suppliers is that supplies to a new non-domestic customer are standard-rated unless a certificate is received. Where a certificate is received part way through a billing period, the supplier may treat it as covering the whole of that period.

Careful attention should be paid to certificates produced as evidence of reduced rating. There is no requirement for suppliers to obtain a certificate for each supply, or have certificates updated; though customers who have made a declaration must advise the supplier of any significant change in their circumstances. For example, a change from 60% to 59% qualifying use is significant in that the whole supply is no longer reduced-rated - the supplier must make an apportionment.

Fuel supplied to a customer at a number of different premises is treated as being supplied separately. A separate certificate should therefore be given to the supplier for each set of premises, if appropriate (see VFUP3100).

If a customer moves from one set of premises to another, a new certificate should be given to the supplier.

If a customer switches to a different supplier, a new certificate should be given to the new supplier.

You should pay particular attention to old certificates, and those from customers likely to be using the fuel for exempt or non-business (except charity non-business) purposes.

You should also be wary of certificates claiming 100% qualifying use. Customers have been known to use this figure when the actual percentage is less, on the basis that 60% qualifying use is sufficient to get the whole supply reduced-rated. If the actual percentage is, say, 60%, any reduction in qualifying use would mean that future supplies must be apportioned.

Customers who use fuel and power for business use but who normally receive de minimis quantities (and so receive supplies at the reduced rate, see VFUP2310) have been known to certify for 100% qualifying use. Again, this is likely to lead to errors as, if the supplies exceed the de minimis limits, the customer has made a declaration in error. It is the supplier’s responsibility to ensure that supplies deemed to be for domestic use are treated as such, but this can complicate billing systems.

Customers are required to keep copies of certificates, calculations, schedules and any other relevant documents for inspection. A customer who provides an incorrect certificate is liable to a penalty (see VCP: VAT Civil Penalties). But if you are not satisfied or have doubts about a certificate, you should first consider whether the supplier has taken all reasonable steps to check the validity of the declaration (see below).

What steps must suppliers take to check customers’ certificates?

You should first consider whether the supplier has taken all reasonable steps to check the validity of the declaration.

Of course, what constitutes reasonable steps may differ from supplier to supplier. Assurance officers should take into account all the circumstances surrounding the acceptance of a customer certificate. Officers who have questions or concerns about “reasonable steps” should contact the policy team.

If a supplier is found to have incorrectly charged VAT at the reduced rate but you are satisfied that the supplier has taken all reasonable steps to check the validity of the customer’s declaration, you should not assess the supplier. The supplier must account for VAT correctly from an agreed current date. This is covered by extra-statutory concession 3.11, which reads as follows.

VAT: Incorrect customer declaration
Where a customer provides an incorrect declaration claiming … eligibility for a reduced rate under Group 1 of Schedule 7A for the qualifying use of fuel and power, and where a supplier, despite having taken all reasonable steps to check the validity of the declaration, nonetheless fails to identify the inaccuracy and in good faith makes the supplies concerned at … a reduced rate, Customs and Excise will not seek to recover the tax due from the supplier.  

In such circumstances, it is reasonable to assume that the customer has given a false declaration. Depending on the circumstances surrounding the issuing of the certificate, the customer might be liable to a financial penalty (see below).

Penalties for false certificates

The VAT Act 1994, section 62 provides for penalties equal to the amount of VAT that should have been charged to the customer, less the amount of VAT that was actually charged.

There is no liability to a penalty if the customer has a reasonable excuse.

It is our policy that no penalty should be issued if the VAT undercharged would have been recoverable as input tax.

Further guidance on the issuing of penalties can be found in VCP: VAT Civil Penalties.

Backdated certificates

Where a customer has not furnished a certificate, it is natural for a supplier to charge VAT at the standard rate on the supply. However, it is not uncommon for customers to react by issuing a backdated certificate to the supplier. In such circumstances, we accept that the supplier may adjust the VAT accordingly, subject to the normal rules (see VAT Notice 700/45: How to correct VAT errors and make adjustments or claims).

Backdated certificates are also acceptable for climate change levy purposes.