Commercial Bills VAT Issue - Did you know?

26 July 2009

One customer recently asked me a question regarding VAT calculation on his commercial bills (with the older tariffs). Essentially he could not understand how VAT was calculated on his huge bill. After much pondering, he found that that to make figures match, he had to assume that 5% VAT was added not just to the electricity consumption charge, but also to the whole lot of fuel surcharge. Fuel surcharge was calculated on the consumption charge for both water (net of subsidy) and electricity. Therefore, he claimed that he was being charged 5% VAT on water consumption (at least on the part that is added as fuel surcharge), e.g.

Assume Commercial Rates, Single Phase, Normal billing in kWh. Water Consumption: 10 units, Electricity Consumption: 1000 units. Period 1 July 2008 - 31 August 2008. According to the calculator:

• Charge for water consumption = €25.62 - €13.98 subsidy = €11.64 [A]
• Charge for electricity consumption = €83.26 [B]
• Electricity Service Charge = €9.50 [C]
• Fuel surcharge @ 95% = ([A] + [B]) * 95% = €90.16 [D]

Now you have to add 5% VAT to the electricity consumption + electricity service charge + total fuel surcharge = ([B] + [C] + [D]) * 5% = €9.15

When I called Water Services to verify whether this was the case, they confirmed. I asked why would one be charged 5% VAT on the "fuel surcharge" part of water consumption. Their reply was, as I expected, that to produce water you need electricity (think of the reverse osmosis plants), hence, fuel surcharge, whether it is calculated on water or electricity consumption, is always related to the consumption of fuel in some way.

Well, whatever! I quickly updated the calculator to cater for this anomaly since, with large bills, 5% on water consumption can add up to quite an amount! Now the calculator shows 5% VAT on the fuel surcharge calculated on water consumption in a separate column.