Most of the coverage of the electricity VAT cut has been about household bills. That has left a lot of business owners assuming the change passes them by. It doesn't. A meaningful number of UK businesses already pay 5% VAT on their electricity rather than 20%, and on 1 October that 5% becomes 0%. Whether that turns into real money depends on one thing most write-ups have skipped over.
TL;DR: VAT on electricity drops from 5% to 0% between 1 October 2026 and 31 March 2027 in Great Britain. Small businesses using under 33 kWh a day, charities and care homes already pay the 5% rate and are included. The saving is only real if you cannot reclaim input VAT.
What exactly changes on 1 October?
The rate of VAT charged on electricity falls from 5% to 0% from 1 October 2026 until 31 March 2027. The government announced the cut on 21 July and expects it to take around £45 off the annual Ofgem price cap, at an estimated cost of £850 million in 2026-27 (GOV.UK, 2026).
Two limits matter. The cut covers electricity only, so gas keeps its existing treatment. And it applies in England, Scotland and Wales only, because EU VAT rules still govern goods in Northern Ireland under the Windsor Framework; Northern Ireland receives comparable funding instead.
The zero rate is temporary. Any extension past 31 March 2027 will be decided at the Autumn Budget, so treat the current position as a six-month window rather than a permanent change to your cost base.
Does the cut reach business electricity bills?
Yes, for some businesses, and the government said so explicitly. The GOV.UK announcement confirms that "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."
That sentence is doing a lot of work. It confirms business supplies are in scope, and it quietly flags the condition that decides whether the cut is worth anything to you. We'll come to the VAT registration point shortly, because it is where most of the confusion sits.
The mechanism is straightforward once you see it. The 5% rate on electricity applies to supplies for "qualifying use", and HMRC treats certain business supplies as domestic use by definition. Zero-rate the domestic category and those business supplies follow it down automatically.
Which businesses already pay 5% on electricity?
Three groups qualify for the 5% reduced rate today, and each of them moves to 0% in October. The first is low-usage premises. HMRC treats supplies of no more than an average of 33 kWh per day, or 1,000 kWh per month, to one customer at one premises as being for domestic use, "even when the supply is to a business customer" (VAT Notice 701/19, HMRC).
That threshold is per premises, not per business. A firm running four small sites can qualify at each one independently, which catches a lot of salons, small retail units, village shops, workshops and single-room offices.
The second group is residential accommodation. Care homes, children's homes, hospices, student halls, houseboats and self-catering holiday accommodation all count as domestic use. Hotels, inns, hospitals and prisons are specifically excluded, so a B&B and a holiday cottage can land on different rates. The third group is charity non-business use. Where a supply is split between qualifying and other use, the whole supply gets the reduced rate if 60% or more of it is qualifying use.
Why does VAT registration change the answer?
Because a VAT-registered trading business gets nothing out of this, and an unregistered or exempt one gets a genuine saving. If you are registered and making taxable supplies, you already reclaim the 5% input VAT on your electricity as part of your quarterly VAT return. Paying 0% instead means you hand over less and reclaim less. The net cost is broadly unchanged.
The businesses that actually gain are the ones that cannot recover input VAT. That means anyone trading below the £90,000 VAT registration threshold who has not registered voluntarily, plus VAT-registered businesses making exempt supplies: care homes providing welfare services, residential landlords, and many charities.
Take a village shop below the registration threshold using 900 kWh a month. At 25p per kWh, that is roughly £1,350 of electricity across the six-month window and about £68 of VAT it currently cannot reclaim. Small, but it is real cash rather than a timing difference. In our experience, this is the distinction clients get wrong first: they see a headline rate cut and assume every business benefits equally.
Electric vehicle charging stays at 20%
Public charge points are excluded, and the gap is about to widen. HMRC treats the recharging of electric vehicles at public charging points as standard-rated "regardless of the quantity of electricity supplied", because those supplies are made at car parks, forecourts and on-street bays rather than to a dwelling. HMRC set out its position in Revenue and Customs Brief 4 (2026).
From October, an employee charging a company car at home pays no VAT on that electricity, while the same driver charging on the road pays 20%. For fleets running a mileage reimbursement policy, that gap is worth modelling before winter. It sits alongside the separate treatment of VAT fuel scale charges for petrol and diesel company cars, and the squeeze on home working cost relief.
One question clients always ask is whether the company can reclaim VAT on an employee charging at home. Generally it cannot, because the electricity is supplied to the householder rather than to the business. From October that argument largely falls away on domestic supplies, since there is no VAT left to reclaim.
What to check before 1 October
Start with your usage. Pull twelve months of electricity readings for each site and work out the daily average. If a premises sits near 33 kWh a day, it is worth confirming with your supplier whether it is being billed at 5% or 20%, because plenty of small sites have quietly been charged the standard rate for years.
Then check your certificates. Low-usage de minimis supplies need no paperwork, as HMRC applies the reduced rate on consumption alone. Qualifying use claims for charity or residential accommodation do need a certificate lodged with your supplier, and a missing one is the usual reason a care home or holiday let is still paying 20%.
What we see most often is a business that qualified years ago, never told its supplier, and has been overpaying since. Suppliers can generally correct the rate and, in many cases, issue a retrospective adjustment. Getting that fixed before October matters more than usual, because you want the correct rate in place when the zero rate starts.
Frequently Asked Questions
Does the VAT cut apply to gas as well as electricity?
No. The cut covers electricity only. Gas supplied for domestic or qualifying use stays at the 5% reduced rate, and gas for other business use stays at 20%.
Does the zero rate apply in Northern Ireland?
No. EU VAT rules continue to apply to goods, including electricity, in Northern Ireland under the Windsor Framework. The government is providing comparable funding to Northern Ireland instead of a direct VAT cut.
Do I need to apply to my supplier to get the reduced rate?
It depends which route you qualify under. De minimis low-usage supplies need no certificate, because the supplier applies the reduced rate based on consumption. Charity non-business use and residential accommodation both require a certificate submitted to your energy supplier.
What happens to a bill that spans 1 October?
HMRC had not published detailed billing guidance at the time of writing, and suppliers are expected to apply the new rate automatically. If your billing period straddles the date, check that the supplier has apportioned consumption correctly rather than applying one rate to the whole bill.
Is the zero rate permanent?
No. It runs from 1 October 2026 to 31 March 2027. The government has said any decision to extend it will be taken at the Autumn Budget, so plan on the basis of a six-month window.
If you are not sure whether your premises qualify for the reduced rate, or whether your business is one that actually keeps the saving, get in touch. We can review your usage against the de minimis limits, check your supplier is applying the right rate, and tell you where you stand before 1 October.