VAT to Be Removed From Domestic Electricity Bills From October

Households are set to receive a modest reduction in their electricity costs after the government announced that VAT will be removed from domestic electricity bills from 1 October 2026.

The VAT rate on household electricity will fall from 5% to 0%. The government estimates the measure will save the average household around £45 a year, although the exact amount will depend on electricity usage.

The reduction should be reflected automatically in qualifying bills, so households will not need to apply for the support separately.

The announcement comes as energy costs remain under pressure. Ofgem’s price cap for a typical household paying by direct debit is currently £1,862 a year for the period from July to September 2026, including VAT at 5%. The regulator is due to announce the cap covering October to December by 26 August 2026.

This means the VAT cut does not necessarily guarantee that total bills will fall in October. Household costs will still depend on electricity and gas usage, wholesale prices, standing charges and the level of the next Ofgem price cap.

The government said the cost of the measure during the current financial year would be funded through savings from cancelling the planned £1.8 billion digital ID programme.

Those using more electricity are likely to save more in cash terms, while households with lower usage will receive a smaller reduction.

For households, the measure provides direct support by reducing electricity bills automatically rather than requiring consumers to apply for a separate scheme.