VAT on domestic electricity falls from the reduced rate of 5% to the zero rate of 0% from 1 October 2026. Electricity only: domestic gas stays at 5%. The government puts it at around £45 off the yearly Ofgem price cap, and some small businesses qualify too.
Two things to hold in mind before you plan around it. The measure was announced on 21 July 2026 and, as at 22 July 2026, it has not been legislated: there is no statutory instrument, no HMRC Revenue and Customs Brief and no Tax Information and Impact Note. And it is funded only for the current financial year, which ends on 31 March 2027.
Most coverage stops at the household saving. The more useful question, if you are a sole trader, contractor, landlord or small business owner, is whether your electricity supply counts as domestic in the first place. A surprising number do, and those supplies follow the domestic rate down to 0%.
Why does a business electricity bill sometimes sit on the domestic rate?
Because VAT law looks at the quantity and the use of the fuel, not at whether the customer is a business. VAT Notice 701/19 (Fuel and power) section 3.2.2 puts it plainly: supplies of certain small quantities of fuel and power, known as de minimis, "are always treated as being made for domestic use, even when the supply is to a business customer".
That single sentence is why the October cut reaches further than the headlines suggest. A supply already on the domestic 5% rate follows it down to 0%. Three routes get a business supply onto the domestic rate.
1. The de minimis limits
For electricity, section 5.2 sets the de minimis level at not more than an average of 33 kWh per day, or 1,000 kWh per month. A small office, a therapy room, a one-person workshop or a lock-up unit can easily sit under that. For gas the limits are 5 therms (145 kWh) a day or 150 therms (4,397 kWh) a month, but gas is not affected by this cut.
2. The 60% qualifying-use rule
Section 3.4 covers mixed-use premises, such as a flat over a shop. If 60% or more of the fuel or power is for qualifying (domestic) use, you treat the whole supply as for qualifying use and charge the reduced rate. Below 60%, the supply is apportioned between the two rates.
3. Supplies to landlords and residents' associations
Section 10.4 says that if you supply fuel or power to a caravan park owner, or to the landlord, managing agent or residents' association of accommodation used for qualifying purposes, your supply is taxed at the reduced rate. Qualifying accommodation under section 3.2.1 includes dwellings, care homes for elderly or disabled people, children's homes and similar residential accommodation, including caravans and houseboats.
Our sibling guide on VAT on electricity and gas bills: 5% vs 20% rates is the deeper explainer on how the two rates and the de minimis test work in practice.
Who moves to 0% and who does not?
| Electricity supply | Rate now | From 1 October 2026 |
|---|---|---|
| Household on a domestic supply | 5% | 0% |
| Non-VAT-registered micro business under the de minimis limits (33 kWh a day / 1,000 kWh a month) | 5% | 0% |
| Mixed-use premises with 60% or more qualifying use | 5% on the whole supply | 0% on the whole supply |
| Supply to a landlord, managing agent or residents' association of qualifying residential accommodation | 5% | 0% |
| Charity non-business use and residential care homes | 5% | 0% |
| VAT-registered business on a standard commercial supply | 20% | No change |
| Domestic gas (not covered by the announcement) | 5% | Stays at 5% |
| Recharging at a public EV charge point (Notice 701/19 section 3.2.2) | 20% | Always standard rated |
Does the electricity VAT cut apply to business bills?
For some, yes. The gov.uk news release is explicit: "Small businesses who qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate will also benefit."
Note the two conditions bolted together in that sentence. In the government's own framing you need to qualify for the domestic relief (the de minimis, 60% or qualifying-accommodation routes above) and be outside the VAT system for the cut to put cash in your pocket.
Why do most VAT-registered businesses gain nothing from the cut?
This is the paragraph most coverage skips, and it is the one that saves you a phone call to your supplier. If you are VAT registered, make only taxable supplies and use the electricity for business purposes, you already reclaim the VAT you are charged as input tax. The VAT on that bill is not a cost to you, it is a timing item that comes back on your next return. Cut the rate and all that happens is there is less input VAT to recover.
Concretely: a business paying £1,000 net plus £50 VAT at 5% pays £1,050, reclaims £50 and bears £1,000. At 0% it pays £1,000, reclaims nothing and bears £1,000. Identical. The clear winners are those who cannot reclaim, which is why gov.uk singles out the non-VAT-registered. If you are below the £90,000 registration threshold and weighing up voluntary registration, our guide on when you need to register for VAT sets out the actual test.
When does a VAT-registered business actually benefit?
"VAT registered means no benefit" is the right rule of thumb, but it is not universal. Being registered does not always mean the VAT on your electricity comes back. Three situations where a rate cut on a domestic-rate supply is a genuine saving:
- Irrecoverable VAT through partial exemption. If some of what you sell is VAT exempt, you cannot recover the input VAT attributable to those exempt supplies. Less VAT charged means less VAT stuck.
- Non-business use. Charities and similar bodies cannot recover VAT on non-business activities at all, which is precisely why gov.uk names them as beneficiaries.
- The flat rate scheme. On the flat rate scheme you pay a set percentage of your VAT-inclusive turnover and do not reclaim input VAT on ordinary running costs, so VAT on a qualifying electricity supply is a real cost to you. Our guide to the VAT flat rate scheme explains how that trade-off works.
None of this changes the liability of the supply. It only changes whether the rate cut reaches your bank account.
What does the change look like in real numbers?
Take a sole trader consultant working from home. Her home supply is qualifying domestic use under section 3.2.1, so the whole bill already carries 5%, and she is not VAT registered. She uses 2,400 kWh a year and her electricity costs £900 a year before VAT.
- VAT at 5% over a full year: £900 x 5% = £45
- VAT at 0% over a full year: £0
- Only six months fall inside the announced window (1 October 2026 to 31 March 2027), so the cash saving is about £22.50
The knock-on effect on her expense claim
She claims a proportion of household costs for working from home. Gov.uk allows "a proportion of your costs for things like: heating, electricity, Council Tax, mortgage interest or rent, internet and telephone use", divided by a reasonable method such as the number of rooms used for business or the time spent working from home. On a 25% business-use proportion, a £22.50 fall in the VAT she pays reduces her allowable expense by about £5.60 across the six months, and the tax effect of that is measured in pennies.
So do not restate a claim, amend a return or re-run an apportionment over it. Just use the actual bills you receive. If you want to sanity-check the wider list of what you can put through, see our allowable expenses for sole traders guide, or our page for sole traders if you would rather have the accounts and tax side handled for you.
How do you check whether your own bill qualifies?
- Find the VAT line. Your supplier shows the rate applied, usually near the total. It will say 5% or 20%.
- Find the kWh used and the period covered, then convert it to a daily and a monthly average.
- Compare against the de minimis limits: not more than 33 kWh a day or 1,000 kWh a month.
- If you are charged 20% but are genuinely under the limits, ask the supplier to correct the rate and refund the difference. That is a supplier-side correction to the VAT they charged you, not something you fix by adjusting your own VAT return.
The mixed-use certificate
Where a supply is mixed use, section 3.5 of Notice 701/19 says the supplier should obtain a certificate from the customer that declares what percentage of the supply is put to qualifying use, signed by a responsible officer. If you live above your trading premises or let out part of a building, that certificate is how the 60% rule gets applied to your account. Landlords should also check how supplies to their properties are treated, alongside their obligations under Making Tax Digital for landlords.
How long will VAT on electricity stay at 0%?
Be careful here, because this is where a lot of coverage will overreach. The gov.uk release gives no end date. What it says is that "this immediate action applies and is funded for this financial year", and that "any further action, including on funding for longer-term measures, will be taken at the Budget alongside an OBR forecast".
Financial year 2026-27 ends on 31 March 2027, so the funded window runs from 1 October 2026 to 31 March 2027, six months, which is why press coverage describes it as a six-month cut. Anything beyond March 2027 is a Budget decision and not announced policy. Plan on six months and treat continuation as a possibility rather than a fact.
Temporary VAT windows catch people out when they revert. The same discipline applies as with the temporary 5% VAT rate on children's meals and family attraction tickets: diarise the end date, and make sure whoever sets your prices and your bookkeeping codes knows about it.
What has not been published yet?
As at 22 July 2026 there is no HMRC Revenue and Customs Brief, no Tax Information and Impact Note and no statutory instrument for this change. That matters for one practical reason: the tax-point treatment of bills that straddle 1 October has not been published, so nobody can yet tell you exactly how a bill running from September into November will be split. We are not going to invent it. Gov.uk's own VAT rates page still listed home energy under the 5% reduced rate when we checked on 22 July 2026. Expect that page, and Notice 701/19, to be updated closer to the date.
What to do in the meantime
- Take and record a meter reading as close as you can to 30 September 2026, ideally with a photo. Whatever mechanics HMRC publishes, a reading on the day is the evidence you will want.
- Check the first bill covering the change and make sure a 0% line actually appears on the electricity element.
- Fixed tariffs are still in scope: all suppliers are expected to pass the reduction on to all customers, including those on fixed tariffs.
- If you quote your own prices VAT inclusive, decide in advance whether a rate change would move your prices or your margin.
What else is in the announcement?
The measure takes around £45 off the yearly Ofgem price cap in October and costs around £850 million in 2026-27, funded by cancelling the Digital ID programme, which was going to cost £1.8 billion over three years. It is expected to reduce CPI by around 0.10 percentage points and RPI by around 0.14 percentage points. If your contracts, rents or fees are index linked to CPI or RPI, that is small but worth knowing about.
What should you do before 1 October 2026?
- Check the VAT rate printed on your latest electricity bill.
- Compare your average daily and monthly kWh with 33 kWh and 1,000 kWh.
- Under the limits but charged 20%? Ask the supplier to correct it and refund the difference.
- Mixed-use premises? Ask your supplier for a section 3.5 certificate and complete it accurately.
- VAT registered and able to reclaim in full? Do nothing, because nothing changes for you.
- Partly exempt, on the flat rate scheme or a charity? Check whether your supply is on the domestic rate, because then the cut is real money.
- Take a meter reading on or near 30 September 2026, and check the first bill after the change.
- Diarise 31 March 2027 as the end of the funded window and watch the Budget.
If you are not sure which category your supply falls into, or you want the VAT and expenses side of a home-based business checked properly, book a free call with Zmartly. Zmartly is CIMA-regulated, and our qualified accountants will tell you quickly whether you are on the right rate. If you file your own returns, our walkthrough on how to complete a UK VAT return is a useful companion read.
Frequently asked questions
When does the 0% VAT rate on electricity start?
1 October 2026, on the basis of the government's announcement of 21 July 2026. VAT on domestic electricity falls from the reduced rate of 5% to the zero rate of 0% on that date. As at 22 July 2026 the change had been announced but not yet legislated. All suppliers are expected to pass the reduction on to all customers, including those on fixed tariffs.
Does the electricity VAT cut apply to business bills?
It applies to any supply already treated as domestic. That includes de minimis supplies of not more than 33 kWh a day or 1,000 kWh a month, which VAT Notice 701/19 says are always treated as being made for domestic use, even when the supply is to a business customer. Gov.uk confirms that small businesses qualifying for the relief and not registered for VAT will benefit. A VAT-registered business that reclaims all of its input VAT sees no cash benefit, because the VAT is not a cost to it in the first place.
Does the VAT cut apply to gas as well as electricity?
No. The announcement covers domestic electricity only. Domestic gas stays at the reduced rate of 5%. A lot of press coverage refers to "energy bills", which blurs the two, so check that your bill shows the change on the electricity element only.
How long will VAT on electricity stay at 0%?
The announcement gives no end date. It says the action is funded for this financial year, which ends on 31 March 2027, so the funded window is 1 October 2026 to 31 March 2027, six months. Anything beyond that is a Budget decision and has not been announced.
Sources
- GOV.UK news release: New PM cuts tax on household electricity bills to give breathing space on cost of living
- VAT Notice 701/19: Fuel and power (de minimis, 60% mixed use, qualifying accommodation)
- GOV.UK: VAT rates on different goods and services
- GOV.UK: Expenses if you are self-employed, working from home
Figures and guidance references checked against gov.uk on 22 July 2026. This article is general information and not advice for your specific circumstances.
