VAT & Domestic Energy

On 21 July 2026, the government announced a temporary cut in the rate of VAT on domestic electricity, reducing it from 5% to 0%.

Domestic fuel and power has long been charged at the reduced rate of 5%. Under the new measure that rate falls to zero on electricity for six months, from 1 October 2026 to 31 March 2027, after which the 5% rate returns. The timing is set to coincide with the winter heating season and the Ofgem price cap update, and the government estimates the average household will save around £45.

The relief is not confined to ordinary households. It applies to all supplies of electricity that meet the definition of qualifying use, which also covers charities for their non-business use, residential care homes, and small businesses that fall within the de minimis threshold by using no more than 1,000 kilowatt hours of electricity per month.

Gas is excluded. Domestic gas remains at the 5% reduced rate. The government's stated reason for treating the two differently is to focus the relief on electricity and support the wider shift towards electrification and cleaner energy.

The measure applies in Great Britain only, covering England, Scotland and Wales. It does not currently extend to Northern Ireland. Because electricity is treated as a good for VAT purposes, Northern Ireland remains subject to EU VAT rules under the Windsor Framework. The government has said it is in discussions with the EU about extending the relief there, and in the meantime the Northern Ireland Executive will receive equivalent funding.

VITA advises on VAT across the energy sector. If you would like to confirm how the temporary rate applies to a particular supply.