The government announced a temporary cut to VAT on domestic electricity, reducing the rate from 5% to 0% for the period 1 October 2026 to 31 March 2027. This is an electricity-only measure. VAT on gas remains at 5%.
Published: July 2025 | Last reviewed: July 2025 | This measure runs until 31 March 2027. Information will be reviewed as Ofgem publishes subsequent cap determinations.
For many households, that raises an immediate question: is this a separate saving on top of the energy price cap, or is it already folded into the headline figure?
What changed
- VAT on domestic electricity bills was cut from 5% to 0% for six months (1 October 2026 to 31 March 2027).
- The saving is worth roughly £45 for a typical household over those six months. This figure is derived by applying the 5 percentage-point VAT difference to the electricity-only portion of the Ofgem typical household consumption figure (around 3,100 kWh per year, pro-rated to six months) at the Q4 2026 unit rate set by Ofgem. The UK Government announcement and the Ofgem Q4 2026 price cap determination both reference this typical-household basis.
- The cut applies to electricity only. Gas bills are not affected.
Why it matters
The energy price cap sets the maximum unit rate and standing charge that suppliers can charge. The cap figure quoted in most news coverage is the annualised cost for a typical household (around 3,100 kWh of electricity and 12,000 kWh of gas per year).
The important bit is that the headline cap figure already reflects the VAT position at the time Ofgem sets it. So when the government cut VAT on electricity to 0%, Ofgem factored that into the cap level for Q4 2026 (see the Ofgem Q4 2026 price cap determination linked in Sources). The saving is built in, not added on top.
In plain English: the cap you see quoted for that period is already the lower, VAT-adjusted number. The roughly £45 saving is the difference between what the cap would have been at 5% VAT and what it is at 0%.
Who may be affected
- Households on a standard variable tariff (often called being "on the cap") will see this reflected in their unit rate automatically.
- Households on a fixed tariff agreed before the cut took effect may not benefit, depending on how their contract was structured. Many fixed-tariff contracts include a VAT pass-through clause, which means the supplier can adjust the rate you pay if the applicable VAT rate changes, in practice this would appear as a revised pence-per-kWh figure on your next statement rather than a separate line item. It can help to check your contract terms or ask your supplier directly.
- Pre-payment meter customers should see the lower rate applied to their electricity top-ups from 1 October 2026.
- The cut does not apply to gas, so any saving only appears on the electricity portion of a dual-fuel bill.
How does it show up on a bill?
A simple way to think about it: your electricity unit rate and standing charge will be stated inclusive of VAT. During the VAT cut period, the rate will be lower than it would have been at 5%. You will not typically see a separate "VAT saving" line. The lower rate is already baked into the pence-per-kWh figure.
If your bill breaks down VAT separately (some do), the electricity VAT line will show 0% or £0.00 for usage during this period.
What to read next
If you would like to understand how this fits into your broader household costs, our household budgeting guide covers ways to track and review regular outgoings. If higher energy bills have led you to consider borrowing to cover costs, it may be worth reading how personal loans work before making any decisions.