Most UK businesses will barely notice the latest cut to electricity VAT. The ones that will are the smallest, like tiny shop units, studios and workshops that use no more than 33 kilowatt hours (kWh) of power a day.
Since October 1, 2026, qualifying electricity in England, Scotland and Wales has carried 0% VAT instead of 5%, according to HM Revenue and Customs (HMRC). The relief lasts until March 31, 2027, so it covers the whole winter.
The savings are small but real. A premises paying £150 a month for power before tax used to pay £7.50 in VAT at 5%. Now it pays nothing.
Who actually gets the cut
The government sold this as help for households. Prime Minister Andy Burnham announced it on July 21, 2026, and told MPs in September that “it will take a little bit of pressure off.”
Businesses qualify through an existing rule. HMRC’s fuel and power guidance (VAT Notice 701/19) treats electricity as domestic if a premises uses an average of no more than 33 kWh a day, or 1,000 kWh a month. This de minimis rule, a small-quantity limit, used to get you 5% VAT. Now it gets you 0%.
HMRC says there are “no changes to the supplies of electricity that qualify for relief.” In plain terms, no new businesses qualify. If you already paid 5%, you now pay nothing.
- Covered, qualifying electricity in England, Scotland and Wales
- Still 5%, Northern Ireland, plus gas and other fuels everywhere
- Still 20%, most business electricity above the threshold
The irony for VAT-registered firms
Businesses registered for VAT can usually claim back the VAT on their energy anyway, so a lower rate makes little difference to them. The clear winners are micro businesses below the VAT registration threshold, which can’t claim it back and just pay the bill.
Premises used for both home and business need more care. If less than 60% of the power goes to qualifying use, only that share gets the relief and the rest is charged at the standard rate.
Look at your next bill. If you use less than 1,000 kWh a month and the VAT line still shows 5% or 20% for power used after October 1, ask your supplier to fix it. HMRC lets suppliers split bills that cross that date based on when the power was used.
The clock is already running. Unless the government extends the cut, the 0% rate ends after March 31, 2027, right as heating bills start to drop.
