VAT on electricity cut to 0% from 1 October, worth about £45 a year

VAT on domestic electricity drops from 5% to 0% for six months in England, Scotland and Wales. Suppliers must pass it on, fixes included

TaxHub editorial teamLast reviewed 23 September 2026 · 2 min read · Checked against the original announcement

VAT on domestic electricity is cut from 5% to 0% from 1 October 2026 until 31 March 2027. The cut applies in England, Scotland and Wales and is worth about £45 a year on a typical bill. Gas is not included. Suppliers are required to pass the saving on to every customer, including those on fixed tariffs. Northern Ireland is not covered by the VAT change but receives equivalent funding instead.

Key facts: VAT on electricity 0% from 1 October 2026 to 31 March 2027. Worth about £45 a year on a typical bill. Applies to all tariffs, fixed deals included. Gas still carries 5% VAT. Northern Ireland gets equivalent funding. Extension beyond March 2027 to be decided at the Autumn Budget.

How the cut reaches your bill

You do not need to do anything. Suppliers must apply the 0% rate to electricity used from 1 October. If you pay by direct debit, expect the monthly amount to reflect it over time rather than on day one, because direct debits are set against forecast annual usage.

The cut is already baked into Ofgem's October price cap figure of £1,723. Without it, the cap would have been higher. That is why electricity under the cap rises by less than 1% this quarter while gas rises by about 8%.

If you are on a fixed tariff, your electricity unit rate and standing charge should fall to reflect the VAT change. Your supplier cannot keep the difference. Check your first bill after October and compare the electricity rates with your contract.

What it does not cover

Gas keeps its 5% VAT rate, so households heated by gas get a smaller benefit than the headline might suggest. Electricity is a bigger share of the bill in flats, all-electric homes and homes with heat pumps or an EV charger, so those households save most.

It is a temporary measure. The government has said whether it continues past 31 March 2027 will be decided at the Autumn Budget. Do not build the saving into long-term plans yet.

What it means for you

For most households this is a modest but automatic saving during the most expensive months. If your direct debit does not move by early winter, ask your supplier to explain how the cut has been applied.

If you are weighing up a fixed deal, remember the VAT cut applies whichever tariff you are on. It should not be the deciding factor between fixing and staying on the cap.

If you use an electric vehicle charger or storage heaters, a smart time-of-use tariff can cut electricity costs further. The VAT cut applies to those too.

How we checked this Figures in this guide were taken from the original announcement and were correct on 23 September 2026. Spotted a change or an error? Tell us and we will review it.

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