0% VAT on electricity: what the cut means for your bill from October 2026
The government has confirmed it will remove VAT from domestic electricity bills from 1 October 2026, cutting the rate from 5% to 0% for the rest of the 2026-27 financial year. Announced on 21 July 2026 as one of the new Prime Minister's first cost-of-living measures, it is worth about £45 a year to a typical household. Here is exactly what changes, who gets it, and the catches worth knowing before you count the saving.
What is changing, in one line
From 1 October 2026 the 5% VAT charged on household electricity drops to zero across Great Britain. It is temporary, running to 31 March 2027, and whether it continues beyond that will be decided at the Autumn Budget. Gas is not included: the 5% VAT on domestic gas stays as it is.
| Detail | What it means |
|---|---|
| Rate change | Domestic electricity VAT: 5% → 0% |
| Starts | 1 October 2026 |
| Ends | 31 March 2027 (extension decided at the Autumn Budget) |
| Typical saving | ~£45 a year (about £3.75 a month) |
| Applies to | England, Scotland and Wales. Not Northern Ireland (funded separately) |
| Also covered | Small businesses, charities and care homes already on reduced-rate energy |
What it does to your bill
Domestic energy carries a reduced 5% VAT rate, added on top of the unit rates and standing charge. Removing it from electricity strips that 5% off the electricity portion of your bill. For a typical home, the electricity side runs somewhere around £900 to £1,000 a year, so the saving lands near £45.
| Typical electricity bill | With 5% VAT | With 0% VAT |
|---|---|---|
| Energy and standing charge (ex-VAT) | £900 | £900 |
| VAT | £45 | £0 |
| Total electricity cost | £945 | £900 |
Your unit rates do not change, and the Ofgem price cap that sets them is unaffected. The VAT simply comes off the total, so the bill you pay falls by roughly the numbers above. It applies whatever tariff you are on: the government expects suppliers to pass the full saving through, including to customers on fixed deals, so you do not need to switch to get it.
Who benefits, and who does not
- Households in England, Scotland and Wales get it automatically on their electricity bill. Nothing to claim.
- Small businesses, charities and residential care homes that already qualify for reduced-rate domestic energy see the same cut.
- Northern Ireland is excluded from the VAT change itself, because energy policy there works differently; the government has said comparable funding will be provided instead.
- Gas-only savings do not apply. The cut is electricity only, so homes that heat with gas keep paying 5% VAT on the gas half of the bill.
The catches to keep in mind
- It is a six-month measure. As it stands the zero rate runs 1 October 2026 to 31 March 2027. Any extension is a decision for the Autumn Budget, not a certainty, so do not bank it into next year's budget yet.
- Check it actually lands on your bill. Suppliers are expected to pass it through in full. It is worth glancing at your October statement to confirm the VAT line on electricity has gone to zero.
- It is not a unit-rate cut. If wholesale prices push the cap up in the same window, that movement is separate and could offset the VAT saving.
Not the same as the 0% VAT on solar and batteries
This is easy to mix up. There are now two different "0% VAT" measures in play, and they cover different things:
- 0% VAT on electricity supply (this article): the 5% VAT on the electricity you buy, removed for six months from October 2026.
- 0% VAT on energy-saving equipment: solar panels, home batteries, heat pumps and insulation, supplied and fitted with no VAT until 31 March 2027. That is a relief on the kit you install, not on the power you use, and it is covered in 0% VAT on solar and batteries.
What to do about it
Nothing, to get the VAT cut itself: it is applied automatically from October. The useful move is to make the rest of your bill work harder while the saving is in place. Compare your current tariff against the market and switch if a better deal is out there (our guide to switching supplier walks through it), weigh suppliers on service and fairness as well as price in the supplier rankings, and run your own numbers in the energy bill optimiser.
Frequently asked questions
About £45 a year for a typical household, or roughly £3.75 a month. It is the 5% VAT removed from the electricity portion of your bill (around £900 to £1,000 a year for a typical home). Your exact saving scales with how much electricity you use.
It applies from 1 October 2026 to 31 March 2027. Whether it continues past that will be decided at the Autumn Budget.
No. The cut is for electricity only. Domestic gas keeps its 5% VAT rate.
No. Suppliers apply it automatically to electricity bills from October, including for customers on fixed tariffs. It is worth checking your October statement shows the electricity VAT at zero.
Households in England, Scotland and Wales do. Northern Ireland is excluded from the VAT change but is due comparable funding through other means.