When Good Energy used bad VAT rates on their bills

When Wendy Pickess decided she wanted to sign up to a green electricity company, she knew she wasn't going to get the cheapest deal.

Wendy understood that her electricity was coming from renewable sources and so she was happy to pay a little extra. But what she hadn't bargained on was being overcharged £50 in VAT by her supplier, Good Energy (formally called Unite).

The mother of two, who now lives with her husband Kevin in Worcester, was a Good Energy customer for around 15 months at her previous house in Brighton.

"I didn't realise that we had been overcharged until we were moving out - after all, who checks the VAT amount on their bill is correct?

"When the final bill arrived I couldn't believe it when I saw, printed at the bottom, VAT had been applied at the 'domestic' 17.5% rate. When I went through all my previous bills I realised that in each case I hadn't been charged VAT at the correct rate of 5%."

Jobs & Money has been through the figures and she was, in fact, charged a range of amounts that bear no relation to the 5% VAT that should be applied to domestic electricity bills.

In her final bill of £41.88, Wendy was charged £3.65 in VAT, which equates to around 8.7%. Her other bills are equally bizarre - on one issued in September she was charged the full 17.5% rate paid by businesses. In others, she was charged around 11.5%.

"I wrote to the company to point this out, but heard nothing. Only when I took my complaint to Energywatch did Good Energy reply. They have since recalculated the bill and paid back most of the money they owe us. I can't believe we are alone in this as bills are produced automatically," she said.

Having initially denied there was a problem, Richard Hussey, Good Energy's marketing and operations director, conceded Mrs Pickess had been overcharged and blamed it on his company's belief that she was a businesses customer. "Someone in the house must have run a business at some point as the meter in the house has a number starting 03 - denoting business use. When we found out about the error we recalculated her bill at the 5% rate, and she has since been repaid."

He couldn't explain the different VAT amounts and referred us to the company's finance director, John Fairchilds. He said the reason for the differing VAT amounts was because Mrs Pickess paid her bills by direct debit, and the sum on the bill referred to the amount paid into the account, rather than the amount of energy consumed.

"Customs & Excise has told us, in line with other small energy suppliers, that we have to levy VAT in this way. It is different to the way the old, established utility firms calculate VAT, and while I am not happy about it, this is the way we have been told to do it. It may be slightly more complicated but it is still possible for customers to calculate they are paying the correct amount."

He said he has had "just half a dozen" complaints about the way VAT is calculated and said he felt his customers were intelligent enough to be able to work out the charges. "I can assure you there is not a systemic problem with our billing," he said.

A spokeswoman for Energywatch says it has received 30 complaints about Good Energy and described the way Mrs Pickess had been treated as "inexcusable".

"This is a company that does not appear to have a particularly good back office operation. We have had one other complaint from a Good Energy customer that was also charged VAT at the business rate. Having looked at the bill, I just can't understand how it printed 'domestic rate at 17.5% VAT' at the bottom," she said.

Good Energy's 13,000 customers (and in fact anyone receiving energy bills) should take a close look at the VAT element of their bills to make sure they are being charged at the domestic 5% rate. If in doubt, contact your supplier and ask for a breakdown of charges for the year

· Following the publication of this article, the matter was resolved by Good Energy to Mrs Pickess' satisfaction.