Policy paper

Temporary zero rate of VAT in Great Britain for domestic electricity

Published 8 September 2026

Applies to England, Scotland and Wales

Who is likely to be affected

Businesses that provide qualifying supplies of electricity and recipients of such supplies in England, Wales and Scotland (Great Britain).

General description of the measure

This measure introduces a temporary zero rate of VAT for qualifying supplies of electricity in Great Britain, for the period 1 October 2026 to 31 March 2027. The rate will remain 5% on all other types of domestic fuel UK-wide.

In Northern Ireland, the rate of VAT on supplies of qualifying electricity will remain unchanged.

This Order will only apply to supplies made in Great Britain. It will not apply to supplies in Northern Ireland. Supplies in Northern Ireland will continue to be charged at the reduced rate, if they qualify for relief.

The effect of the change is that domestic electricity bills will have no VAT charged, reducing costs to households over the winter months when energy consumption is highest.

Policy objective

The objective of the measure is to provide targeted relief for households. As electricity is used more widely than any other fuel type, reducing electricity bills maximises support for the greatest number of households.

Background to the measure

This measure was announced on 21 July 2026. Currently, VAT on domestic fuel and power is charged at the reduced rate of 5%. This applies to supplies of fuel and power made to people’s homes, as well as fuel and power for non-business charitable use and for any supplies below a certain ‘de minimis’ quantity.

Detailed proposal

Operative date

The measure will have effect from 1 October 2026 to 31 March 2027.

Current law

Group 1 of Schedule 7A to the Value Added Tax Act 1994 (VATA94) (‘Group 1’) permits the reduced rate of VAT to apply to supplies for qualifying use of domestic fuel or power.

Note 1(e) to group 1 of Schedule 7A to the Value Added Tax Act 1994 specifies that supplies of ‘electricity, heat or air conditioning’ are included in the relief.

Note 3 to group 1 of Schedule 7A to the Value Added Tax Act 1994 specifies that ‘qualifying use’ means ‘domestic use’ or non-business use by a charity.

Note 5 to group 1 of Schedule 7A to the Value Added Tax Act 1994 allows for supplies under a certain quantity (de minimis) to be deemed to be domestic use.

Note 6 to group 1 of Schedule 7A to the Value Added Tax Act 1994 specifies that supplies are for domestic use if they are supplied in dwellings, buildings used for a ‘relevant residential purpose’ and other specified property types.

Note 7 to group 1 of Schedule 7A to the Value Added Tax Act 1994 lists property types which are used for a ‘relevant residential purpose’.

Sections 29A(3) and 96(9) of VATA provide power for HM Treasury to make an order to amend Schedule 7A. Sections 30(4) and 96 (9) provide power for HM Treasury to make an order to amend Schedule 8.

Proposed revisions

The Order modifies Schedule 7A and Schedule 8 of the VAT Act 1994. These Schedules describe supplies which are charged to VAT at 5% and 0%, respectively.

The Statutory Instrument modifies Schedule 7A to restrict supplies of electricity qualifying for the reduced rate of VAT of 5% to those supplied in Northern Ireland.

The Statutory Instrument inserts a new Group 24 in Schedule 8, ‘Domestic Electricity: England and Wales and Scotland’. The description of these supplies is the same as the current description in Schedule 7A.

The effect of the changes is to maintain the reduced rate in Northern Ireland and introduce a zero rate in Great Britain but maintain the existing descriptions of when those supplies qualify for relief. 

The changes have effect for a period from 1 October 2026 to 31 March 2027.

Summary of impacts

Exchequer impact (£ million)

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
empty	empty	empty	empty	empty	empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.

Macroeconomic impact

This measure will be formally assessed once costings have been certified by the Office for Budget Responsibility but is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is expected to have an impact on individuals, households and families as they will benefit from lower prices charged by domestic electricity providers, subject to the degree to which these businesses pass the VAT savings on to their customers. They will not need to do anything differently since the potential reduction will be applied automatically.

This measure will have no impact on individuals, households and families in Northern Ireland.

This measure is not expected to impact on family formation, stability or breakdown.

This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as the change does not change how they will interact with HMRC.

Equalities impacts

This measure may apply to individuals regardless of their protected characteristics. HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure and so cannot assess if there are any disproportionate impacts to protected groups. 

Administrative impact on business including civil society organisations

This measure is expected to have a negligible administrative impact on approximately 100 electricity suppliers as they will be required to apply the new rate of VAT to qualifying supplies of electricity. These businesses already apply a reduced rate to qualifying supplies. One-off costs will include familiarisation with the change, updating systems to change the rate of VAT for qualifying supplies from 5% to 0% from 1 October 2026, and updating systems again to change the rate from 0% to 5% when the temporary zero rate comes to an end on 31 March 2027. There are expected to be no ongoing costs.

There is expected to be no administrative impact on businesses or civil society organisations in their capacity as electricity customers. Some businesses and charities may be required to calculate business use versus non-business use and self-certify their energy use to their suppliers but these requirements are exactly the same regardless of whether the VAT rate is 5% or 0%.

This measure is expected overall to have no impact on businesses’ experience of dealing with HMRC as it does not change any tax administration processes or obligations.

Operational impact (£ million) (HMRC or other)

HMRC will not incur any extra costs implementing this change. The change of VAT rate should not impact the costs of administering the relief. New guidance will be published alongside the legislation.

Other impacts

Environmental impact

The measure is expected to result in a marginal increase in demand for electricity, which would increase carbon emissions in line with the carbon intensity of domestic electricity supply. Offsetting this, the measure is expected to result in some substitution away from gas and other domestic fuels towards electricity consumption, as electricity is generally less emissions intensive than direct fossil fuel use in homes, this substitution is expected to reduce emissions.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Joseph Lennox by email: joseph.lennox@hmrc.gov.uk.

Declaration

James Murray MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.