New zero rate of VAT for domestic electricity from 1 October 2026

Summary

• The UK government announced on 21 July 2026 that VAT on domestic electricity in Great Britain will be cut from the reduced 5% rate to 0% from 1 October 2026, timed to coincide with Ofgem’s new price cap. Announced as one of new Prime Minister Andy Burnham’s first policy measures, the zero rate is designed to ease cost-of-living pressure ahead of winter, saving a typical household around £45 per year. [vatcalc.com], [gov.uk]
• The measure is temporary, running to 31 March 2027 (end of the 2026–27 financial year), with any extension to be considered at the Autumn Budget under fiscal rules. Costed at roughly £850 million for the year, it is funded by cancelling the planned £1.8 billion Digital ID programme. Government expects all suppliers, including those on fixed-rate tariffs, to pass the full VAT saving through to customers. [vatcalc.com], [vat-valida…atfaqs.com]
• The cut applies only to electricity, not gas or other fuels currently at 5%, and also benefits eligible small businesses, charities and residential care homes. Under the Windsor Framework, EU VAT rules still apply to goods in Northern Ireland, so the rate there stays at 5%; Stormont receives equivalent funding for comparable support—another live example of post-Brexit VAT divergence within the UK. [vatcalc.com], [vatupdate.com]

• VATCalc
• GOV.UK press release
• Kreston Reeves analysis