From 1 October 2026, VAT on qualifying electricity bills across Great Britain will temporarily drop from 5% to 0%, staying at 0% until 31 March 2027.
You may have already seen the news in relation to household energy bills, but households aren’t the only ones set to benefit. Small businesses, charities, care homes and other organisations that currently qualify for 5% VAT on their electricity will also pay 0% during the six-month period.
But what if your business currently pays the standard 20% VAT rate? This could be a good time to check your bill, as some businesses qualify for the reduced rate without realising it. So, what’s changing, who qualifies and how can you check what your business should be paying?
Why Is Electricity VAT Being Reduced?
The temporary VAT cut is part of government plans to help reduce electricity costs over the winter months. Households normally pay 5% VAT on their electricity, so this will temporarily drop to 0%. The same applies to businesses and other organisations that already qualify for the reduced rate.
However, this doesn’t mean every business will see their electricity VAT drop from 20% to 0%. If your business currently pays 20%, you’ll only benefit if your electricity supply meets the existing rules for the reduced VAT rate.
And you might be surprised by who qualifies.
Could Your Business Qualify for 5% VAT?
Most businesses are charged 20% VAT on their energy bills, but there are situations where you could qualify for the reduced 5% rate instead. One of the biggest things for smaller businesses to check is their electricity usage. If your business meets the de minimis threshold (uses an average of 1,000 kWh of electricity or less per month) your supply can qualify for the reduced.
That could apply to all kinds of smaller premises, from independent shops and salons to cafés, offices and other small businesses. It’s based on how much electricity you use, rather than simply the type of business you run.
Certain charities can also qualify for 5% VAT where electricity is being used for non-business activities. There are separate rules covering qualifying residential use too, including certain care homes and residential accommodation.
What If Your Electricity Has Different Uses?
Things can get a little more complicated when electricity is used for a mixture of qualifying and non-qualifying purposes. If 60% or more of your energy is used for a qualifying purpose, the whole supply can receive the qualifying VAT treatment.
If less than 60% qualifies, that doesn’t necessarily mean you miss out completely. Your bill may instead be split, with the relevant VAT rate applied to each portion.
This can be particularly important for charities and organisations with premises that are used for several different purposes.
How Can You Check What VAT You’re Paying?
The first step is simple: take a look at a recent electricity bill. Your bill should show whether you’re currently being charged VAT at 20% or the reduced 5% rate. If you’re already paying 5%, your qualifying electricity should move to the temporary 0% rate from October.
Depending on why your business qualifies, you may need to provide your supplier with additional information or complete a VAT declaration before the correct rate can be applied.
With the temporary 0% rate starting in October, now is a good opportunity to check your electricity bill and make sure you’re not paying more VAT than you need to. At Reduce My Costs, we can review your bill and check whether the correct VAT rate is being applied. If you’re currently paying 20% and think you could qualify for 5%, we can also help you understand what your options are.
Not sure what you’re currently paying? Send us a recent electricity bill and our team can take a look.
*The temporary 0% VAT rate will apply to qualifying electricity in England, Scotland and Wales from 1 October 2026 until 31 March 2027. Qualifying electricity supplies in Northern Ireland will remain at 5%.
