VAT on business electricity: 20%, 5% or 0%? The October 2026 change explained
From 1 October 2026 qualifying electricity in Great Britain is charged VAT at 0%, not 5%, until 31 March 2027. Business electricity that doesn't qualify stays at 20%. Small sites qualify through the de minimis rule.
Use the VAT checker to see which rate your supply should get, or read on for the rules.
Which business electricity qualifies for reduced-rate VAT?
VAT relief on fuel and power applies to "qualifying use". HMRC's Fuel and power (VAT Notice 701/19) lists three routes:
- Domestic use, such as flats and some residential accommodation.
- Charity non-business use, for activities a charity doesn't charge for.
- De minimis supplies: small quantities are treated as domestic use even when the customer is a business.
The notice also allows a mixed supply, partly qualifying and partly not. Domestic and charity use may need a VAT declaration given to your supplier. De minimis needs nothing: the supplier should apply it automatically.
Is business energy VAT exempt?
Not strictly. Business electricity and gas are taxable supplies: the standard rate of 20% applies unless the supply qualifies for a lower rate. People often call that lower rate a business energy VAT exemption, but the supply is reduced-rated (5%) or, for qualifying electricity in Great Britain from 1 October 2026, zero-rated (0%). Which one you get depends on how the energy is used, not on the type of business.
VAT de minimis limits
A supply is de minimis if it is no more than an average of 33 kWh a day, or 1,000 kWh a month, of electricity to one customer at one premises. For piped gas the limits are 145 kWh a day or 4,397 kWh a month. The limits apply whether the bill is based on a meter reading or on an estimate (paragraphs 4.2 and 5.2).
To test your own bill, divide the kWh billed by the number of days in the billing period.
| kWh billed | Average a day | De minimis? |
|---|---|---|
| 900 | 29.0 | Yes: reduced-rate VAT, no Climate Change Levy |
| 3,100 | 100.0 | No: standard-rate VAT, CCL due |
0% VAT on business electricity: what changed on 1 October 2026
The government introduced a temporary zero rate for qualifying electricity in Great Britain. The Temporary zero rate of VAT in Great Britain for domestic electricity (tax information and impact note) explains that the order moves these supplies from the reduced rate to a new zero-rate group, with the same description of which supplies qualify. HMRC's Revenue and Customs Brief 10 (2026): temporary zero rate of VAT for domestic electricity in Great Britain confirms there are no changes to which supplies of electricity qualify for relief.
So the rule for a de minimis business electricity supply in Great Britain is:
- up to 30 September 2026: 5%;
- 1 October 2026 to 31 March 2027: 0% (the zero rate for electricity);
- from 1 April 2027: 5%, unless the zero rate is extended.
What did not change
- Northern Ireland: qualifying electricity stays at 5%.
- Gas: qualifying gas stays at 5% across the UK.
- Larger supplies: electricity above the de minimis limits without a qualifying-use declaration stays at 20%.
Bills that span 1 October
Many bills run across the change, for example 15 September to 14 October. HMRC's brief says that where a billing period includes 1 October 2026, suppliers may work out the VAT by the date the energy was used. It recommends meter readings, and allows other methods if they give a fair and reasonable result.
Splitting by days, a 30-day bill from 15 September to 14 October has 16 days at 5% and 14 days at 0%. On a corrected net of £276.00, that is about £7.36 of VAT, not £13.80 at 5% for the whole bill, and far less than £55.20 at 20%.
How to check the VAT on your bill
- Find the billing period and the kWh billed. Work out the average a day.
- If it is within the de minimis limit (or you have a qualifying-use declaration), check the VAT rate against the dates above.
- If the bill charges 20% on a de minimis supply, it is likely wrong. Ask the supplier to re-issue it.
- If it charges a reduced rate on a large supply, check whether you gave a declaration. If not, the VAT could be corrected later.
VAT checker, declaration and CCL
- VAT checker: do I qualify for reduced VAT? Five short questions, then the likely rate.
- VAT declaration for reduced-rate energy: who needs one and what to send.
- Climate Change Levy rates: a supply that is reduced-rated for VAT is in general not liable to CCL.
VAT on business electricity FAQ
What is the VAT rate on business electricity from October 2026?
20% for supplies that don't qualify for relief. For qualifying electricity in Great Britain it is 0% from 1 October 2026 to 31 March 2027 (Temporary zero rate of VAT in Great Britain for domestic electricity (tax information and impact note)).
Is business energy VAT exempt?
Not exempt: it is a taxable supply at 20%, or at a reduced or zero rate where the use qualifies (domestic, charity non-business, or de minimis).
Does a small business get the reduced rate automatically?
If the supply is within the de minimis limit (33 kWh a day for electricity), yes: the supplier should apply it without a declaration.
Do I need a declaration for reduced-rate VAT?
Not for a de minimis supply. A mixed-use supply needs a certificate from you stating the exact share of qualifying use. See the declaration guide.
Does the zero rate apply to gas or Northern Ireland?
No. Qualifying gas stays at 5% and qualifying electricity in Northern Ireland stays at 5%.
Sources: Fuel and power (VAT Notice 701/19); Temporary zero rate of VAT in Great Britain for domestic electricity (tax information and impact note); Revenue and Customs Brief 10 (2026): temporary zero rate of VAT for domestic electricity in Great Britain; VAT rates (GOV.UK).