From 1 October 2026, some UK businesses and organisations will benefit from a temporary reduction in VAT on their electricity bills, with qualifying supplies moving from 5% to 0%.
While the change is primarily aimed at domestic electricity customers, certain businesses, charities and other organisations will also benefit.
However, not every business will qualify, and some may already be paying more VAT on their energy than necessary.
What has changed with business energy VAT?
The Government has introduced a temporary 0% VAT rate on qualifying electricity supplies in England, Scotland and Wales, running from 1 October 2026 to 31 March 2027.
Previously, qualifying electricity supplies were charged VAT at the reduced rate of 5%. During this six-month period, the rate will instead be 0%.
For businesses and organisations that currently pay the standard 20% VAT rate, there is no automatic reduction unless their supply meets the qualifying criteria.
Importantly, this change applies to electricity only. Gas continues to be subject to the existing VAT rules, including the reduced 5% rate where applicable.
For full details of the changes, including eligibility criteria, you can refer to the official HMRC guidance on VAT for fuel and power.
* The temporary 0% electricity VAT rate applies
to qualifying supplies in England, Scotland and
Wales between 1 October 2026 and 31 March 2027.
The Northern Ireland row refers to qualifying
supplies only. Standard-rated business supplies
remain at 20%. Eligibility is subject to HMRC rules.
Which businesses could qualify for 0% VAT?
Although most commercial electricity supplies are subject to 20% VAT, certain organisations and types of energy usage qualify for reduced VAT.
These can include:
- Small businesses with low electricity consumption – where usage falls within HMRC’s qualifying limits.
- Charities – where electricity is used for qualifying non-business charitable activities.
- Residential care homes – where the electricity supply meets the qualifying residential-use conditions.
- Community organisations and village halls – depending on their charitable status and how the premises are used.
- Other qualifying residential or mixed-use premises – where electricity is supplied for eligible uses.
Eligibility depends on the nature and use of the supply, rather than simply the type or size of the organisation.
Small businesses: could your electricity consumption qualify?
One area that businesses frequently overlook is HMRC’s de minimis rules.
Under these rules, electricity supplies with relatively low consumption can qualify for preferential VAT treatment, even where the premises are used for business purposes.
The current electricity thresholds are:
- An average of 33 kWh per day.
These limits are assessed against the relevant billing period rather than simply the total consumption over a year.
For example, a small office, retail unit or landlord’s electricity supply with relatively low consumption may qualify for the temporary 0% VAT rate.
Businesses should remember that eligibility may change between billing periods if their electricity consumption increases above the applicable threshold.
What about charities and community organisations?
Charities and certain community organisations may also qualify for reduced VAT on their energy supplies.
This generally applies where energy is used for qualifying charitable non-business activities.
For example, a village hall used for charitable community activities may qualify, although the precise treatment depends on the organisation’s activities and how the energy is used.
Where an organisation uses electricity for both qualifying and non-qualifying purposes, HMRC’s mixed-use rules may apply.
If at least 60% of the electricity is used for qualifying purposes, the whole supply may qualify for the preferential rate. Otherwise, an appropriate proportion may qualify.
In some circumstances, the organisation will need to provide a VAT declaration to its energy supplier to confirm eligibility.
Don’t forget about Climate Change Levy (CCL)
VAT isn’t the only additional charge businesses should check on their energy bills.
The Climate Change Levy (CCL) is a separate environmental tax applied to certain business electricity and gas supplies.
Energy supplied for qualifying domestic or charitable non-business use, including supplies within the relevant de minimis limits, is generally exempt from CCL.
This means qualifying businesses and organisations could potentially benefit from both preferential VAT treatment and an exemption from CCL.
Importantly, the temporary VAT change does not alter the existing CCL rules.
Could you have overpaid VAT on previous energy bills?
It’s also worth checking whether your energy supplier has historically applied the correct VAT rate.
Some businesses and charities may have been charged the standard 20% VAT rate when their electricity or gas supplies qualified for the reduced 5% rate.
Where VAT has been charged incorrectly, it may be possible to request a correction or refund for previous billing periods, subject to the applicable rules and supporting evidence.
This is particularly worth reviewing for charities, village halls, community buildings and businesses with relatively low energy consumption.
How can WeSave help?
At WeSave, we specialise in helping businesses and organisations reduce their commercial energy costs.
As part of reviewing your electricity and gas supplies, we can help identify whether the VAT and CCL treatment on your energy bills appears appropriate.
Where necessary, we can also assist with enquiries to your energy supplier and help you understand the steps required to request the correct VAT treatment.
Alongside this, we compare business electricity and gas deals from more than 20 suppliers, helping customers secure competitive rates for their next contract.
Unsure whether you’re paying the correct VAT on your business energy?
Get in touch with the WeSave team for a no-obligation discussion.
Get Your Free Renewal Quote
Call 01872 495 111, email hello@wesave.co.uk, or visit www.wesave.co.uk.
Information correct as at October 2026. VAT treatment depends on the individual supply and qualifying use. For specific VAT advice, please consult your accountant or HMRC.