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.

What is a SIC code?

A SIC code (Standard Industrial Classification code) is a number used by government bodies such as Companies House and the Office for National Statistics to categorise the main type of business activity a company carries out.

• Most businesses only need one SIC code, but some may have more if they carry out different types of work.
• Where a business has more than one SIC code, the predominant activity is used to decide whether VAT applies to water charges.
• SIC codes group businesses into broad “industrial” or “non-industrial” categories.

 

In simple terms, industrial businesses usually pay VAT on water bills, while non-industrial businesses do not. 

Your SIC code is what determines whether VAT applies to your water charges.

Industries typically subject to VAT 

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

 

• Chemicals
• Construction
• Engineering
• Manufacturing
• Mining
• Textiles
• Utilities

 

The SIC codes that are used to determine whether VAT applies on water charges are the ones in the 1980 edition of the SIC codes. You can find out which of those SIC codes applies to your business by downloading it from the National Archives website. Please note: the link will automatically start a file download, and the information is not displayed on the web page itself. You should be able to find the file in your downloads folder. 
The first digit of that SIC code determines which SIC division the business falls under, and those divisions in turn are categorised into ones which are subject to VAT on water charges and ones which are not.

 

Industrial divisions

There are 5 divisions of the 1980 SIC code list for which VAT is payable on business water charges. 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-industrial divisions

The other SIC divisions are not subject to VAT on their water bills. 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.

 

Which VAT rate applies to my water bills?

• When a business has a SIC code that falls into one of the Industrial divisions, the standard rate of VAT, currently 20%, is applied to water charges.
• For non-industrial businesses, there is no VAT on water charges – they zero rated.
• Regardless of your SIC code, there is no VAT on wastewater or trade effluent charges. They are zero rated.

 

What if my business is not registered for VAT?

The application of VAT is determined by the SIC code as described above, regardless of whether your business is VAT registered.

 

Can I reclaim the VAT on my water bills?

HMRC’s normal VAT reclaim rules apply. In practice, this means that most businesses that are VAT registered can reclaim the VAT but there are exceptions such as businesses that make supplies that are exempt from VAT. We cannot advise on this.

 

How to avoid incorrect VAT charges

To ensure you are 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 are obliged to charge VAT on your commercial water services by default.

 

Castle Water customers can log in, or register to update a business SIC code on the Customer Portal. Find more information about SIC codes here, including a downloadable copy for reference. Find out more about SIC codes in this downloadable PDF.  

 

If you would like to talk to one of our advisors about the VAT on your water bill, webchat is the fastest way to get in touch. Webchat is available on our website and on your online portal.

 

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