Households should see a modest reduction in their electricity costs from 1 October 2026, when VAT on qualifying domestic electricity supplies in Great Britain is temporarily reduced from 5% to 0%.
When does the VAT reduction apply?
The temporary zero rate will apply from 1 October 2026 until 31 March 2027. Other domestic fuels, including gas, will continue to be subject to VAT at 5%.
For most households, there is nothing that needs to be done to obtain the reduction. Energy suppliers are expected to stop charging VAT on qualifying electricity bills automatically from 1 October. The change also applies to fixed tariffs where the price has already been agreed.
How much could households save?
The government estimates that removing VAT from domestic electricity will save the average household around £45 a year, although the actual saving will depend on the amount of electricity used and the tariff charged by the supplier. Households that rely heavily on electricity, including those in all-electric properties, could see a greater benefit.
It is worth remembering that this does not necessarily mean that electricity bills will fall by exactly 5%. Energy prices themselves can change. The VAT reduction simply means that the 5% VAT charge which would otherwise have applied to qualifying electricity is removed during the six-month period.
Small businesses could also benefit
The change is not restricted entirely to private households. Certain small businesses, charities and residential care homes that already qualify for the reduced 5% VAT rate on electricity can also benefit from the temporary zero rate.
Small businesses should therefore check their electricity bills rather than assuming that the change only applies to domestic customers. Businesses with relatively low levels of electricity consumption may already qualify for the reduced VAT treatment and could consequently benefit from the temporary zero rate.
What about landlords?
Landlords should also consider whether the change affects properties where they are responsible for paying for electricity.
Where tenants contract directly with an electricity supplier, the reduction should normally be dealt with by the energy company. However, the position may be different where the landlord pays the electricity bill and subsequently recovers the cost from tenants, perhaps through rent, a service charge or a separate electricity charge.
The VAT treatment of amounts recharged to tenants depends on the circumstances, so VAT-registered landlords should not automatically assume that they can simply apply the new zero rate to a recharge.
Check your October bills
Households, landlords and qualifying small businesses should check the first electricity bill covering the period from 1 October. The VAT treatment should reflect the temporary reduction where the supply qualifies.
The reduction is currently temporary. Unless the government extends the measure, qualifying domestic electricity will return to the reduced 5% VAT rate from 1 April 2027.
