Energy company using VAT to part-pay fine

There is a piece of legislation that states "If [an energy supplier] fails to meet any individual standard of performance it must, for each such failure, make a payment of £30 to the customer ". Because of such a failure, my electricity supplier, under the "Adjustments before VAT at 5%" section of my bill has credited my account with £28.57 and then applied 5% VAT to make up the remainder. My understanding is that this is effectively using VAT to pay 5% of their fine. Here is my thought process: The legislation says they should pay me £30 (this includes crediting my bill with £30). So let's say my electricity charges were £100. If they credited £30, I'd owe them £100 - 30 = £70 plus £3.5 VAT at 5%, total owed by me £73.5. What they do instead is they credit £28.57, so I owe them £100-28.75 = £71.25 plus £3.57 VAT at 5%, total owed by me £74.82. Does this seem right? I believe they're wrong to do it this way as it saves them money that I end up paying, but would appreciate a sanity check please. Thank you in advance.

Hi,

We would not be able to comment on how the energy supplier arranges this £30 payment.

All we can confirm is that the company would need to be accounting for 5% VAT on their supply and paying this over to us.

Thank you.

https://www.gov.uk/government/publications/revenue-and-customs-brief-2-2022-vat-early-termination-fees-and-compensation-payments/revenue-and-customs-brief-2-2022-vat-early-termination-fees-and-compensation-payments It may be that the supplier is taking a view that the £30 payment is not an ex-gratia payment but is a payment connected to the original supply (of domestic electricity) and so they are adjusting your bill and charging reduced rate VAT. In your post you state the VAT charge means you are paying part of the the "fine". So is it a fine or compensation? Fines are usually issued by a Court or authority (like HMRC or Council) and paid by the person who made the error, whereas here, the supplier is paying you £30 and perhaps on the basis it is compensation and if so, then the above link explains the logic as to why the £30 might be inclusive of VAT. In other words, the £30 is being treated as VAT inclusive by the supplier. Whether or not the £30 should be VATable will depend on the legislation you are referring to about failing to meet performance standards. It's a matter between you and the supplier as HMRC do not have sight of your energy contract or the legislation you refer to and so cannot know what basis the £30 compensation is issued.

Thanks Admin and Jason. The piece of legislation I referred to is this - in particular paragraph 2: https://www.legislation.gov.uk/uksi/2015/1544/regulation/8/made Apologies for referring to it as a fine - I guess it's compensation. I now understand that HMRC would not have a view on this. From the link you sent I guess it would be VATable. But my original question still stands as to whether £30 is should be before or after VAT and the legislation unfortunately is unclear on this. What irks me is their system automatically added £30, and they manually removed it to adjust to £28.57. I know it's loose change, but there's a principle behind it. Thanks again.

Hi,

HMRC still wouldn't be able to comment on how the utility company arranges this compensation for you.

We would only expect them to account for the VAT in the correct way.

Thank you.