What’s changing
- As announced by the Government in 2026, the 5% VAT rate on domestic electricity bills will be cut to 0% from 1 October 2026 for all households, including those on fixed rate tariffs and pre-payment meters. (gov.uk)
- Small businesses, charities, and residential care homes which currently get the reduced 5% rate will also benefit from full removal. (gov.uk)
- The change is funded through the cancellation of the Digital ID programme and applies for the financial year 2026-27. (gov.uk)
Expected savings & who benefits most
| Type of consumer | Estimated annual saving* |
|---|---|
| Average household | ~£45 |
| Household with pre-payment meter | similar saving depending on usage but until the change, VAT will still be charged at purchase point; from Oct VAT removed on “top-ups” too. (gov.uk) |
*Savings depend on energy usage and standing charge.
Charities, care homes, small businesses also gain savings particularly heavy energy users.
Implementation details & what you need to check
- Nothing to claim: suppliers must pass the VAT removal on automatically. No action needed by consumers. (gov.uk)
- Fixed-rate tariffs: even if you locked in your rate before 1 October, VAT removed. (gov.uk)
- Pre-payment meters: from 1 October, VAT removed from money you load onto card or key. Before then, VAT still charged on “top ups.” (gov.uk)
Practical implications & checklist for businesses
- Small businesses, charities and residential care homes: currently using reduced rate, will now get zero; may see cash flow gains. Need to check how VAT certificates or declarations process work. (gov.uk)
- Energy suppliers: need to update billing systems to remove VAT; ensure all meters and meter types (prepay, fixed, etc.) reflect the change.
Example scenarios
- Household A: uses £800/year worth of electricity (ex-VAT). Currently they pay 5% VAT roughly £40/year; from Oct they’ll pay £0. Net saving £40.
- Charity hall: £5,000/year electricity expenditure – current VAT at 5% is £250. From Oct VAT removal yields same saving £250.
Things to watch for / risks
- Suppliers might delay implementing changes on pre-payment meters due to technical or regulatory delays; check your bill post-October.
- Ensure your tariff has properly revised taxation component – fixed rate suppliers may include VAT in their bundling.
- Central government funding lasts only for 2026-27; possible re-introduction or change after that unless extended.
This VAT change gives immediate relief to many in the UK, but check your energy bills post-October 2026 to confirm the new VAT rate has been applied properly.