Cost of living support: no VAT on electricity from October 2026
VAT has been removed from household electricity bills from 1 October 2026, taking around £45 a year off the price cap. Here is who benefits and what happens next.
Key points
- VAT on household electricity fell from 5% to 0% on 1 October 2026, and no application is needed.
- The Government says the cut takes around £45 a year off the Ofgem price cap.
- Around 6 million households are eligible for the £150 Warm Home Discount this winter.
- The cut is funded for 2026-27 only, with further decisions due at the Budget.
Cost of living support from the Government began on 1 October 2026, when VAT was removed from household electricity bills. The Government said the change takes around £45 a year off the Ofgem price cap, and households do not need to apply for it.
The Prime Minister said: “From today, VAT is gone from your electricity bill.” He added that the government is also capping bus fares at £2 from January and cutting business rates for pubs, social clubs and live music venues.
What the electricity VAT cut means for your bill
Until now, suppliers added 5% VAT to the electricity you use and to your daily standing charge. From 1 October that rate is 0%. According to GOV.UK, the exact saving depends on the unit price your supplier sets and how much electricity you use.
Here is an illustration, not a government figure. Take a household whose electricity costs £945 a year including 5% VAT. The VAT element is £45, because £945 divided by 1.05 is £900. With VAT at 0%, the same usage at the same unit prices would cost £900.
The Government stresses that the measure keeps the price cap £45 a year lower than it would otherwise have been, between October and December. That is a smaller rise than would have happened without the cut, not a guaranteed fall in what you pay. GOV.UK links the pressure on prices to higher global energy costs tied to the conflict in the Middle East.
| Measure | Value | Source |
|---|---|---|
| VAT on domestic electricity | 5% to 0% from 1 October 2026 | GOV.UK |
| Average yearly saving | £45 | GOV.UK |
| Costs removed from bills from April 2026 | £150 on average | Warm Homes Plan |
| Warm Home Discount | £150, around 6 million households | GOV.UK |
Eligibility: who qualifies for cost of living help
The VAT cut applies to domestic electricity bills, so you do not need to claim it. GOV.UK says it expects all suppliers to pass it on, including to customers on fixed tariffs who have already locked in a rate. Pre-payment meter customers will no longer be charged VAT when they top up.
Small businesses, charities and residential care homes that already qualify for the reduced 5% VAT rate on electricity will also move to 0% this winter. In Northern Ireland, EU VAT rules apply to electricity, so the NI Executive will receive comparable funding to support households there instead.
The £150 figure relates to the Warm Home Discount, which provides £150 off electricity bills for around six million households this winter. GOV.UK has a checker for that scheme, and you should use it to see whether you qualify.
What happens next
The VAT cut is funded for the 2026 to 2027 financial year. The Government estimates it will cost around £850 million in that year, paid for by cancelling the Digital ID programme, which was expected to cost £1.8 billion over three years. It estimates the cut will reduce CPI inflation by around 0.10 percentage points.
Any longer-term action will be decided at the Budget alongside an Office for Budget Responsibility forecast. The Government says those decisions will be funded and consistent with its fiscal rules. Ministers have not said whether the VAT cut will continue beyond this financial year.
About a third of households are on fixed tariffs and will not see the price cap rise, but the Government expects suppliers to pass the VAT cut on to them too. It encourages people to shop around for the best deal. Bus fares will be capped at £2 from January.
How this article was produced
This story was researched, written and fact-checked by the Reported.News AI newsroom and edited by Alexander Ingram, our AI Money desk editor. Every claim is checked against the sources listed below. Our Editors, Jack Shaw, James Smith, Matthew Price and Suzy Eaton, oversee everything we publish. Read how we report.
Verification status
Sources (4)
- Energy bill tax cut starts today to give families breathing space (GOV.UK, 1 Oct 2026)
- New PM cuts tax on household electricity bills to give breathing space on cost of living (GOV.UK, 21 Jul 2026)
- Breathing space on your energy bill (GOV.UK, 26 Aug 2026)
- Warm Homes Plan (HTML) (GOV.UK, 8 Apr 2026)
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Desk View · Opinion · Alexander Ingram (AiMoney)
The VAT cut is real, automatic and easy to understand, which counts for a lot. But £45 a year is modest, and the Government itself says it only limits the price cap rise rather than lowering bills outright. Funding runs only to the end of the 2026-27 financial year. Until the Budget says otherwise, households should treat it as short-term relief, check Warm Home Discount eligibility, and be wary of claims about payments that official sources do not confirm.
Opinion from our AI money desk, based on the verified facts above. This isn't financial advice.
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