The short version: the electricity VAT cut UK households will see
The vat cut on electricity bills 2026 removes VAT entirely from domestic electricity, dropping the rate from 5% to 0% between 1 October 2026 and 31 March 2027. The Andy Burnham VAT cut was announced on his second full day in office as Prime Minister, funded by scrapping the planned Digital ID programme rather than new borrowing.
The government expects the move to cut a typical bill by around £45 a year. Fuel poverty campaigners have welcomed it, and Martin Lewis has warned the saving may barely register once the next price cap lands on the same day.
Energy bill VAT change October 2026: what is different
Domestic electricity VAT 2026 currently sits at 5%. From 1 October 2026, that rate drops to zero, timed to coincide with the next Ofgem price cap review, which takes effect the same day. The electricity VAT 0% rate covers households, qualifying small businesses, charities and care homes across Great Britain, with gas excluded and gas VAT staying at 5%.
HM Treasury estimates the cost of the energy VAT relief 2026 at around £850 million in 2026-27, funded by cancelling the planned Digital ID programme, previously costed at £1.8 billion over three years. Any extension beyond March 2027 will wait for the Autumn Budget and an OBR forecast.
VAT cut price cap October 2026: does the VAT cut save money
Martin Lewis, founder of MoneySavingExpert, called the Andy Burnham energy bills move "a good totemic step" but cautioned that households "won't feel much benefit," since the same-day Ofgem price cap is forecast to rise around 3%, over £50 on a typical bill, erasing most of the £45 saving. The exact figure is not confirmed until 26 August. We covered the Q3 2026 cap at £1,862 a year, with the Q4 cap expected to land in a wide range either side.
A £45 cut alongside a forecast £50-plus rise means many households may see little change in what leaves their account in October, despite paying less tax on electricity.
The £45 figure is not fixed either. VAT is a percentage of the bill, so the saving moves with the size of the bill rather than sitting at a set cash amount. None of this changes the underlying cost of electricity, since wholesale gas prices, network charges and policy costs remain untouched.
Gas bills, and the households the cut does not reach
National Energy Action, the fuel poverty charity, backed the move as "the start we wanted to see," though chief executive Adam Scorer noted it covers electricity only and argued that heat and power should both be VAT-exempt. He called for further action on energy debt and low-carbon heating support, since the poorest households are often the last a domestic electricity VAT relief measure reaches.
Will the VAT cut reach your bill
The government expects suppliers to pass the full saving to every customer, including those on fixed tariffs, as they did with the £150 cut announced at the last Budget. British Gas, E.ON Next and Octopus Energy have already confirmed automatic pass-through, so no customer action is required and no call to your provider or fresh meter reading is needed.
The cut applies equally across every tariff type, fixed or variable, on any supplier, and does not change unit rates or which deal is cheapest. Switching tariffs is not required to capture the electricity VAT 0% rate, and comparisons should keep resting on the rates on offer rather than on this measure.
Electricity VAT cut Northern Ireland treatment
Households in Northern Ireland will not see the cut directly, since Windsor Framework rules keep EU VAT rules on electricity in place there and the UK cannot change the rate without EU agreement. The Northern Ireland Executive instead receives funding equivalent to the electricity VAT cut Northern Ireland value, intended to leave households no worse off. Our SwitchInsights analysis of regional bill impact tracks how these settlements compare on a per-household basis.
The energy VAT relief 2026 applies automatically, so nothing needs signing up for. The more useful move is checking whether a fixed deal beats the level you expect the cap to reach after 1 October, since the cheapest fixes can undercut the VAT saving and the cap rise combined. Compare current rates on the SwitchPilot tariff tracker before the Q4 cap is confirmed on 26 August.
Frequently asked questions
What is the VAT cut on electricity bills?
The government has removed VAT from domestic electricity bills, cutting the rate from 5% to 0% between 1 October 2026 and 31 March 2027. The measure is temporary, funded by cancelling the planned Digital ID programme, and applies across Great Britain.
When does the electricity VAT cut start?
The zero rate takes effect on 1 October 2026, the same day the next Ofgem price cap begins. The cut is due to run until 31 March 2027, with any extension decided at the Autumn Budget.
How much will the VAT cut save me?
The government estimates a typical household will save around £45 a year. Forecasters expect the Q4 price cap, confirmed on 26 August, to rise by a similar or larger amount, so many households may not notice a change in what they pay.
Does the VAT cut apply to gas bills?
The cut applies to domestic electricity only, and VAT on gas bills stays at 5%. National Energy Action has argued both fuels should be exempt, since many lower-income households rely on gas for heating.
Will Northern Ireland get the VAT cut?
Not directly, since Windsor Framework rules mean the UK cannot lower electricity VAT in Northern Ireland without EU agreement. The Northern Ireland Executive will instead receive funding equivalent to the cut, to fund comparable support for households.
Is the VAT cut permanent?
The zero rate is confirmed only for the current financial year, ending 31 March 2027, so it is not yet permanent. The government says a decision on extending it will be made at the Autumn Budget alongside an OBR forecast.
Do I need to switch tariffs to get the VAT cut?
The cut applies automatically to every tariff type, fixed or variable, on any supplier, so switching is not required. It does not change unit rates or which deal is cheapest, so switching decisions should still be based on the rates on offer, not on this measure.