From 1 October 2026 to 30 June 2027, VAT on electricity in Great Britain is 0% for some supplies, but before you go looking for the saving on your business bill, here’s the catch: for most businesses it isn’t there. The 0% rate only applies to electricity that would have qualified for the 5% reduced rate, which covers domestic use, a charity’s non-business use and small supplies. Most business electricity is still charged at the standard 20%.
What Changed on 1 October 2026?
The government announced the change on 21 July 2026, and the Budget on 28 October 2026 extended it by three months. From 1 October 2026 to 30 June 2027, under the temporary zero rate of VAT, qualifying electricity in England, Scotland and Wales is charged VAT at 0% instead of 5%. After that, suppliers go back to 5%.
There are three limits you’ll want to know about straight away:
- Electricity only: Other fuel types aren’t affected, so gas stays at 5% for qualifying use.
- Great Britain only: In Northern Ireland, qualifying electricity stays at the reduced rate of 5%.
- No new winners: There are no changes to the supplies of electricity that qualify for relief. Whatever was charged at 5% before 1 October 2026 is charged at 0% until 30 June 2027, and nothing else moves.
That’s why household electricity rates under the price cap for 1 October to 31 December 2026 are quoted without VAT, and why the change also reaches some small businesses. Whether yours is one of them comes down to the existing rules on qualifying use and small supplies, which we cover below.
If a bill covers dates either side of 1 October 2026, your supplier can base the VAT on when the electricity was used. Meter readings are the recommended way to split the bill between the two rates, though any method that gives a fair and reasonable result is accepted. If a split bill doesn’t look right to you, we’ll check it.
Who Gets the 0% Rate on Business Premises?
Under the VAT rules for fuel and power (VAT Notice 701/19), there are three ways a business can get the lower rate:
- Domestic use: Electricity for dwellings and certain residential buildings, such as care homes for the elderly or disabled, children’s homes, hospices, school and university residential accommodation, self-catering holiday accommodation, caravans and houseboats.
- A charity’s non-business use: If a charity doesn’t make a charge, its activities are generally non-business, and fuel and power for those activities qualifies.
- Small supplies: Electricity averaging no more than 33 kWh a day, or 1,000 kWh a month, to one customer at any one of its premises is charged at the reduced rate, whether the bill is based on a meter reading or an estimate.
Mixed premises have their own rule. If 60% or more of the electricity is for qualifying use, the whole supply can be treated as qualifying. Below 60%, only the qualifying part gets the lower rate and the rest is charged at the standard rate.
Imagine a small café with a flat upstairs, using around 25 kWh a day in total. It sits under the small-supply limit, so its electricity was charged at 5% before 1 October 2026 and is charged at 0% until 30 June 2027. Picture instead a workshop using 80 kWh a day with no living space. None of its supply qualifies, so its VAT stays at 20% throughout.
Why Most Business Electricity Stays at 20%
The starting point hasn’t changed. Most goods and services carry the standard rate of 20%, and fuel and power is standard-rated unless it’s eligible for the reduced rate. A shop, an office, a factory or a restaurant without qualifying use or a small supply pays the same VAT after 1 October 2026 as it did before.
That’s how the “VAT off electricity” headlines can catch business owners out. If your bill hasn’t changed, it may simply be that none of your supply qualifies. But if your VAT line has moved when you didn’t expect it to, or stayed put when you think it should have dropped, send it to us. Our bill validation checks each bill against your agreed contract rates and recorded consumption, and we take up any error with your supplier.
Getting the Lower Rate: Your VAT Declaration
If some or all of your electricity is for qualifying use, your supplier needs to know. You do that with a certificate stating what percentage of the electricity at each premises is, or will be, put to a qualifying use.
The certificate has to come from a responsible officer or official of your organisation, signed and dated with their name and position. Anyone who gives an incorrect certificate may be liable to a financial penalty, and suppliers are expected to make reasonable checks. Some charities may also need to split business from non-business use and self-certify their energy use to suppliers, whatever the VAT rate.
The good news is there’s no new paperwork for the 0% rate. Who qualifies hasn’t changed, and it’s the same certificate as before. If a site’s use has changed since you last sent one, update it with your supplier before your next bill. You sign the declaration, and we check that every bill after it is charged at the right rate.
How Black Sheep Utilities Can Help
- Bill checks: We offer bill validation to all our customers, so the VAT and rates on each bill match what’s been agreed and recorded.
- Your next contract: When your renewal comes round, we’ll compare business electricity prices from suitable suppliers for your sites and present the options that best suit your business.
- Every site in one place: We keep every contract end date for your sites on record, which makes checking a whole portfolio much quicker.
What This Means for Your Business
For most businesses, the VAT line stays at 20%, before and after 1 October 2026. If you’ve got flats, residential space, a charity’s non-business activity or a small supply on site, you could be paying 0% until 30 June 2027, provided your supplier has the right declaration. The quickest check is the VAT line on your business energy bill: if it still shows 20% on a supply you think qualifies, we’ll look into it with your supplier for you.
Final Thoughts: Let Us Check Your Bills
The 0% rate is real, but it only reaches the supplies that already qualified for 5%, and only until 30 June 2027. If you’re not sure your bills have caught up, or you’d simply like a second pair of eyes on your VAT and charges, send us a recent bill for each site and we’ll take it from there. Or call our Energy Team on 01273 914000. We’re always happy to help.