Electricity bills to be zero rated from October 2026
Source of the update
The Government has announced that VAT on domestic electricity supplies will be reduced from the current 5% rate to 0% from 1 October 2026. The measure is intended to reduce household energy costs and provide additional support during the winter months.
Who will actually benefit?
Households and organisations that cannot recover VAT are expected to benefit from the change because the VAT charged on their electricity bills will be removed. However, most VAT registered businesses will see little or no financial benefit. This is because they already reclaim the VAT charged on their electricity bills through their VAT returns. Although suppliers will charge VAT at 0% rather than 5%, businesses that normally recover input VAT are not currently bearing the cost of that VAT. In other words, the reduction is only likely to produce a genuine saving if you are not VAT registered, or if your organisation is unable to recover the VAT it incurs, such as many charities and certain non-business bodies.
How much could be saved?
The Government estimates that the average household could save around £45 a year, although the actual amount will depend on electricity consumption and future energy prices. The £45 saving assumes your annual electricity costs are £900. Remember that the reduction only applies to the VAT element of the bill. The total amount you pay will still be influenced by wholesale electricity prices, standing charges and any future changes to the energy price cap.
What should you do?
No action should be required for most households, as energy suppliers are expected to apply the new zero rate automatically from 1 October 2026. If you feel this alert could help a business colleague or family member, please feel free to share it with them.
