A cut to the Value Added Tax (VAT) VAT is now officially in effect. As of 1 October 2026, eligible business electricity supplies are being charged at a temporary 0% VAT rate instead of 5%.

With the change now in its first month, it is an ideal time to check your eligibility and understand what to expect when your next bill arrives. Here is everything you need to know to ensure your business stays informed and in control of its energy costs.

What does the 0% electricity VAT rate mean for businesses?

Between 1 October 2026 and 31 March 2027, the VAT rate on qualifying business electricity across England, Scotland, and Wales has been temporarily reduced from 5% to 0%.

It is important to note that the underlying rules governing eligibility have not changed:

• Supplies that previously qualified for the reduced 5% VAT rate will now receive this temporary 0% rate.
• Most businesses paying the standard 20% VAT rate will continue to do so.
• Gas VAT remains entirely unchanged.
• Qualifying electricity accounts in Northern Ireland continue to be charged at 5%.

This means the update is not a reduction for every commercial electricity bill. Your overall energy costs and final position depend entirely on your consumption levels and how the energy supply is used on your premises.

Which businesses qualify for 0% VAT on electricity?

Eligibility generally falls into two groups, based on how much electricity you use and what it is used for:

Businesses with low electricity use:

Electricity supplied to one customer at a particular premises at an average of no more than 33 kWh per day (or 1,000 kWh per month) can qualify for reduced VAT rate.

This could include a small shop, office or professional services business. Your electricity use is what’s considered, rather than your number of employees or the size of your premises.

If your premises does not have a smart meter, submitting monthly meter readings to your electricity supplier ensures accurate consumption records, confirming your usage stays at or below the 1,000 kWh limit required for the temporary 0% VAT rate.

Organisations with qualifying use:

Certain premises and organisational activities qualify due to their specific operational nature:

• Residential accommodation: Electricity used for care homes, student accommodation, and self-catering holiday properties may qualify.
• Charities: Electricity utilised for a charity’s non-business activities can also qualify, though charity status alone does not make every single supply automatically eligible.

How does electricity VAT work for mixed-use premises?

If one supply serves both qualifying uses and other business activities, the VAT rate depends on the split:

• 60% or more qualifying use: The whole supply receives 0% electricity VAT.
• Less than 60% qualifying use: The qualifying portion receives 0% electricity VAT, while the rest is charged at 20%.

For example, if 40% of your electricity is for qualifying use, that 40% receives 0% VAT and the remaining 60% is charged at 20%.

You must give your supplier a declaration confirming the qualifying percentage and tell them if it changes. No certificate is needed for supplies within the low-use limits.

How can you check the VAT rate on your business electricity bill?

You may not have received your October bill just yet, but when it lands, take a few moments to review it thoroughly using these steps:

• Check the billing dates: Does the invoice span periods both before and after 1 October?
• Verify the VAT rate: Does the percentage applied align with your supply's eligibility criteria?
• Review your usage: Do the kilowatt-hour figures accurately reflect your recent business operations?

For eligible customers already receiving the reduced rate, suppliers should apply the update automatically. If your circumstances are unique, or if you manage multiple business premises, check each supply separately.

How NFU Energy can help

NFU Energy offers a practical, independent review of your energy arrangements. Using a recent bill and basic site information, the team can check account accuracy, verify electricity VAT eligibility, and help navigate supplier communications or contract renewals.

Request an energy contract review by visiting https://nfuenergy.co.uk/ or calling the utility contracts team on 024 7669 8885.