VAT on electricity: the rate, the cut and what it saves you

EnergyUpdated 1 October 2026

VAT on household electricity in the UK was cut to zero on 1 October 2026, from the reduced rate of 5 percent that applies to domestic energy, a change the Treasury says keeps the Ofgem price cap 45 pounds a year lower than it would otherwise have been. The cut covers electricity and not gas. The saving depends on how much a household uses because the cap limits rates rather than bills.

TL;DR · LAST REVIEWED VAT on household electricity in the UK was cut to zero on 1 October 2026, from the reduced rate of 5 percent that applies to domestic energy, a change the Treasury says keeps the Ofgem price cap 45 pounds a year lower than it would otherwise have been. The cut covers electricity and not gas. The saving depends on how much a household uses because the cap limits rates rather than bills.

Household electricity is charged at zero VAT from 1 October 2026, down from the reduced rate of 5 percent.
Household gas stays at the reduced rate of 5 percent, and business energy is generally at the standard rate of 20 percent.
The Treasury says the cut takes around 45 pounds off the yearly Ofgem price cap.
The cap limits unit rates and standing charges on a standard variable tariff, so it is not a cap on a total bill.

KEY FACTS

The rate is now zero on electricity: VAT was removed from household electricity bills on 1 October 2026. Domestic energy had been charged at the reduced rate of 5 percent rather than the standard 20 percent
Electricity only, not gas: The Treasury announcement covers household electricity bills. It does not remove VAT from domestic gas, which continues at the reduced rate
It is £45 off the cap, not £45 off your bill: The Treasury says the cut keeps the Ofgem price cap £45 a year lower than it would otherwise have been. The cap is a limit on unit rates and standing charges, not a maximum bill, so what any household saves depends on how much electricity it uses
Fixed tariffs are a different case: The Treasury says around a third of households are on fixed tariffs and so are not affected by the cap change, and that it expects suppliers to pass the VAT cut on to them, which could mean their bills fall overall
Business electricity is not covered: Business supplies are generally charged at the standard rate, with the reduced rate applying only in defined circumstances such as low usage or qualifying charitable use
It sits alongside other help: The government points to £150 of costs removed from bills earlier in the year and the £150 Warm Home Discount, which it says has been expanded to around six million households

What the rate is now

The rate that applies to a supply depends on who is buying the energy and what it is used for. The table below sets out the position on the day of the change.

Supply	VAT rate	Notes
Household electricity	0 percent from 1 October 2026	The government removed VAT from household electricity bills from this date.
Household gas	Reduced rate of 5 percent	Unchanged by this announcement.
Business electricity and gas	Standard rate of 20 percent in general	The reduced rate is available in defined circumstances, including low usage and qualifying charitable use, as set out in VAT Notice 701/19.

Domestic fuel and power in the UK has long been charged at the reduced rate of VAT of 5 percent rather than the standard rate of 20 percent. That history matters for understanding the size of the change. The cut removes 5 percentage points from household electricity, not 20. The standard rate of VAT in the UK is 20 percent and the reduced rate is 5 percent, and domestic energy has sat in the reduced category rather than the standard one. The Treasury announcement refers to removing VAT from household electricity bills, and that is the scope of the measure. Gas is not included, so a household that heats with gas and cooks with gas still pays the reduced rate on that part of its supply.

For a reader trying to work out what applies to a particular address, the first question is whether the supply is domestic. A supply to a home is domestic. A supply to a business is not, in general, and the standard rate applies unless the business falls into one of the defined circumstances where the reduced rate is available. Those circumstances include low usage and qualifying charitable use, and they are set out in VAT Notice 701/19 rather than in the announcement itself. The second question is what the energy is used for. Electricity supplied to a home is now at zero. Electricity supplied to a business is generally at 20 percent. The two categories are treated differently, and the difference is not a matter of the size of the customer but of the nature of the supply.

What the cut is worth

HM Treasury states that the tax cut takes around 45 pounds off the yearly Ofgem price cap, keeping the cap 45 pounds a year less than it would have been between October and December. That is the published figure, and it is worth being precise about what it describes. The Ofgem price cap limits the unit rates and standing charges a supplier can charge on a standard variable tariff. It is not a cap on a total bill. A household's bill depends on how much energy it uses, because the cap constrains the price of each unit and the fixed daily charge rather than the number of units bought. The 45 pound figure is therefore a cap figure. It describes what the cap would have been without the cut compared with what it is with the cut, for a typical household. It is not a promise about any individual bill.

HM Treasury states that savings for households depend on how much energy they use. The direction of that is straightforward. A household using more electricity than the typical household saves more than 45 pounds, because it buys more units at the reduced rate. A household using less saves less. A household that uses very little electricity might see a saving of only a few pounds across a year. The same logic runs in reverse for the cap itself. Because the cap sets rates rather than totals, two households on the same tariff can have very different bills, and the difference comes from consumption rather than from the cap. When a figure such as 45 pounds is quoted, it is a statement about the level of the cap, not a statement about what will appear on a particular statement.

There is a second reason to treat the figure carefully. The cut lands on the same day as an increase in the Ofgem price cap. A bill can therefore rise and still be lower than it would have been without the cut. The two movements pull in opposite directions, and the net effect on any household depends on the size of the cap change, the size of the VAT change and the amount of electricity used. The Treasury figure of 45 pounds is the amount by which the cap is kept lower than it would otherwise have been between October and December. It is a comparison between two versions of the cap, not a comparison between two bills a household will receive.

Whether it applies to you

On a standard variable tariff, the cut is reflected in the capped rates from 1 October. The cap limits the unit rates and standing charges a supplier can charge on that tariff, and the removal of VAT from household electricity feeds into those capped rates. If you are on a standard variable tariff and you use electricity at home, the change applies to your supply. The amount you save depends on how much electricity you use, for the reasons set out above. The rate you pay for each unit should reflect the cut, and the standing charge should reflect it too, because VAT applies to the supply as a whole rather than to one part of the bill.

On a fixed tariff, the position is different. HM Treasury states that around a third of households are on fixed tariffs and will therefore not be affected by the Energy Price Cap rise. A fixed tariff is not governed by the cap, so the mechanism that carries the cut through to capped rates does not reach it in the same way. The government states that it expects suppliers to pass the VAT cut on to fixed tariff customers, meaning those customers could see their energy bills fall overall. That is an expectation expressed by the government rather than a guarantee, and it is worth treating it as such. If you are on a fixed tariff, the practical step is to check the next bill and see whether the VAT line has changed. The government encourages people to shop around for the best deal for their home, which is a separate point from the VAT change but relevant if you are reviewing your tariff anyway.

Prepayment meters and economy tariffs are treated in the same way as other domestic supplies for VAT purposes. VAT applies to the supply, and the supply is domestic electricity, so the zero rate applies from 1 October. Where energy is included in rent, the supply is billed to the account holder. That means the account holder is the person who sees the VAT treatment on the bill, and the arrangement between landlord and tenant is a separate matter from the VAT rate itself. If you rent and your energy is included, the bill that carries the VAT line is the one sent to whoever holds the account.

How to check it on your bill

VAT is shown as a separate line on a domestic energy bill. That makes a direct check possible. Compare a bill covering a period before 1 October with one covering a period after. On the earlier bill, the VAT line should show the reduced rate of 5 percent on the electricity element. On the later bill, the electricity element should show zero. The gas element, if there is one, should still show the reduced rate, because the cut covers electricity and not gas. Reading the two bills side by side is the simplest way to confirm that the change has reached your account.

One complication is timing. A bill that spans the change date may apportion the period, charging the old rate on the days before 1 October and the new rate on the days after. That is normal billing practice for a rate change, and it means a single bill can show both treatments. If you see a bill that covers days on both sides of the change, the presence of a 5 percent line is not by itself evidence of an error. The question is which days the line covers. A bill covering only days after 1 October should not show VAT on the electricity element.

If the rate still shows on a period after the change, the first step is to contact the supplier. Suppliers can correct a bill and explain how the period has been apportioned. If the matter is not resolved, the next step is the supplier's complaints process. If it remains unresolved after that process, the Energy Ombudsman is available. Keeping the bills that show the periods in question makes the query easier to resolve, because the dates and the VAT lines are the evidence. The order is supplier first, then the complaints process, then the Ombudsman.

What else is changing

The cut lands on the same day as an increase in the Ofgem price cap. That timing is the source of much of the confusion around the measure. A household can see its bill rise because of the cap change and still be paying less than it would have paid without the VAT cut. The two effects are separate and they move in opposite directions. The Treasury figure of 45 pounds describes the difference the cut makes to the cap, not the difference a household will see between one quarter and the next. For a full picture of how the cap has moved, the KT price cap tracker sets out the changes over time.

The government lists other measures alongside the cut. It states that this follows 150 pounds of costs removed from energy bills in the Budget last year. It states that the 150 pound Warm Home Discount has been expanded to around six million households. It has also said that bus fares will be capped at 2 pounds from January. These are separate from the VAT change and have their own eligibility rules and timings. The Warm Home Discount in particular is a payment to qualifying households rather than a change to the rate charged for a supply, so it does not appear as a VAT line on a bill.

The announcement was published by HM Treasury on 1 October 2026 and names the Prime Minister Andy Burnham, the Chancellor of the Exchequer John Healey, and the Secretary of State for Energy Security and Net Zero Miatta Fahnbulleh. The measure itself is a change to the rate of VAT on household electricity. What it does is remove 5 percentage points from that supply. What it does not do is change the rate on household gas, change the rate on business supplies in general, or convert the price cap into a cap on total bills. Those boundaries are the ones to keep in view when reading any figure attached to the change.

Source: HM Treasury: energy bill tax cut starts today.

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DISCLAIMER

VAT rates and energy prices change. The figures here were correct on 1 October 2026 and the price cap is reviewed quarterly. The 45 pound figure is the Treasury's estimate of the effect on the price cap, not a saving guaranteed to any household. Information only, not tax or financial advice.

Frequently asked questions

What is the VAT rate on household electricity now?

Household electricity is charged at zero VAT from 1 October 2026. Before that date it was charged at the reduced rate of 5 percent, which is the rate that has long applied to domestic fuel and power in the UK.

Does the cut apply to gas as well as electricity?

No. The cut covers household electricity. Household gas remains at the reduced rate of 5 percent, unchanged by this announcement.

How much does the cut save?

HM Treasury states that the tax cut takes around 45 pounds off the yearly Ofgem price cap, keeping the cap 45 pounds a year less than it would have been between October and December. HM Treasury also states that savings for households depend on how much energy they use, so the amount saved varies by household.

Is the 45 pound figure the amount my bill will fall by?

It is a cap figure rather than a promise about an individual bill. The Ofgem price cap limits the unit rates and standing charges a supplier can charge on a standard variable tariff, and it is not a cap on a total bill. A household using more electricity than typical saves more than 45 pounds, and one using less saves less.

I am on a fixed tariff. Does the cut apply to me?

HM Treasury states that around a third of households are on fixed tariffs and will therefore not be affected by the Energy Price Cap rise. The government states that it expects suppliers to pass the VAT cut on to fixed tariff customers, meaning those customers could see their energy bills fall overall. That is a government expectation rather than a guarantee, so checking the next bill is the practical step.

SOURCES