VAT on Electricity to be Cut for Small Businesses & Qualifying Organisations
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Andy Burnham has already made waves early on in his recently announced tenure as Prime Minister. Along with promises to cut business rates for pubs and venues, and proposals to end rough sleeping, he’s also promised to cut VAT from 5% to 0% on electricity bills for households and qualifying small businesses. This has come at a highly opportune time, seeing as homes and companies are feeling the squeeze of the energy crisis in today’s economy.
These cuts will come into effect on the 1st October 2026 and remain in effect until 31st March 2027. It’s mostly a cut of VAT for electricity used in domestic settings; however, it will also be relevant to small businesses across the country. This article will explain who the VAT rate reduction will benefit, how much and how to get support if you’re unsure about your eligibility.
What is the reduced VAT rate on electricity?
As stated above, the cut in VAT for electricity will be 5% across the 6 months between 1st October 2026 and 31st March 2027.
The average savings for most households in the UK are estimated to be around £45 across this period; however, this will vary between households depending on consumption. As the VAT is a standardised 5% on the overall bill, the more your household or business consumes, the more the savings will be.
It’s worth noting that the period of the reduction comes during the 6 coldest Autumn and Winter months, when heating and lighting costs are increased.
Which businesses are eligible for electricity VAT cuts?
The reduction in VAT rate is primarily intended for domestic households, but it will also benefit a range of qualifying small businesses and non-profit organisations. Many businesses in the UK pay a standard 20% VAT rate on electricity, and these companies will not see benefits from the cut. Eligibility depends on how your business falls under the qualifying VAT category and how your electricity is billed.
To check whether you qualify, your VAT rate should be shown clearly on your business energy bills.
Who qualifies for reduced VAT on electricity?
- Small businesses and micro-enterprises that qualify for domestic energy rates, as well as non-VAT-registered small firms, will enjoy the cuts.
- Residential care homes and other similar accommodation providers will get to experience the electricity VAT cut.
- Charities and non-profit organisations will have the 5% reduction in VAT rate.
Yes, the reduction is primarily intended for residential households, but there are a lot of smaller, independent businesses across the country that will also feel the benefits.
Not sure if your small business qualifies?
If you’re unsure of whether or not your business will be included in the reduction, it could be worth getting some dedicated energy support.
Choose D-ENERGi for energy support
If you’re interested in learning more about how this VAT reduction might impact your business energy bills, you should visit D-ENERGi today. We offer specific advice on this topic as well as guidance on finding the best possible tariffs or making energy switches in general, for businesses of all shapes and sizes.
Get in touch with us now and get a clearer picture of how the next few months might look for your business.
