0% electricity VAT from 1 October 2026: which small businesses can benefit?

From 1 October 2026, qualifying electricity supplies in England, Scotland and Wales move temporarily from the 5% reduced VAT rate to 0%. The zero rate runs until 31 March 2027. Although the policy is aimed mainly at households, HMRC’s existing definition of qualifying use also covers some small business, charity and residential-care electricity supplies, so the change can affect non-domestic bills too.

The important limit is that this is not a blanket VAT cut for every business electricity contract. Eligibility follows the same rules that already decide whether electricity qualifies for the reduced 5% rate. In practice, that means finance teams should check how each premises is treated today rather than assume every electricity invoice will become zero-rated in October.

What changes on 1 October 2026?

HMRC’s 8 September policy paper says the temporary zero rate applies only in Great Britain and uses the same underlying description of qualifying supplies as the existing reduced-rate rules. Northern Ireland keeps the 5% rate for qualifying electricity. Other domestic fuels remain at 5% across the UK.

Which small businesses can qualify?

Small electricity usage can qualify automatically

HMRC treats certain small quantities of electricity as domestic use even where the customer is a business. For electricity, the de minimis limit is no more than an average of 33 kilowatt hours a day, or 1,000 kilowatt hours a month, supplied to one customer at one premises. Supplies within that limit are currently reduced-rated and, in Great Britain during the temporary period, should fall within the 0% relief.

This is the route most likely to matter to a very small office, shop, studio or other low-energy premises. The test applies to the supply at each premises, so a business with several locations should not assume that qualifying treatment at one site automatically applies to another.

Charities and residential settings can also be within scope

Qualifying use also includes non-business use by a charity and specified residential use. HMRC’s guidance covers dwellings and certain residential accommodation, while charity guidance explains that fuel and power used for charitable non-business activities can qualify. The government’s August explanation specifically says that small businesses, charities and residential care homes already receiving the reduced 5% rate can benefit from the 0% electricity rate in Great Britain this winter.

What if a premises has mixed qualifying and business use?

Mixed use needs more care. HMRC says that if 60% or more of the fuel or power is for qualifying use, the whole supply can be treated as qualifying. If less than 60% is for qualifying use, VAT should be applied separately to the qualifying and non-qualifying portions. For mixed-use supplies, the customer may need to provide the supplier with a certificate stating the qualifying-use percentage and keep the supporting calculations.

This can matter to charities with both business and non-business activity, or premises with a combination of qualifying residential and commercial use. The temporary 0% rate does not remove the need to calculate or certify that split; HMRC’s impact note says those customer obligations remain the same.

Why VAT-registered businesses should distinguish gross savings from net savings

A lower VAT rate does not have the same economic effect for every customer. A business that is not VAT registered, or cannot recover all of its input VAT, can see a direct reduction in the amount it ultimately bears. A VAT-registered business making taxable supplies can normally reclaim VAT on qualifying business purchases, so moving an electricity invoice from 5% to 0% may reduce the cash paid to the supplier but also remove the corresponding input VAT claim.

That distinction is especially relevant to partly exempt organisations, charities and small businesses outside VAT registration. Do not book the 5% difference automatically as a permanent saving without considering whether the business would previously have recovered that VAT through its VAT return.

Five checks for October electricity bills

1. Confirm the premises is in England, Scotland or Wales. The temporary 0% rate does not apply to Northern Ireland.
2. Check why the electricity supply qualifies today. For a small business, this may be because usage stays within the de minimis limit; for a charity or residential setting, it may be because of qualifying use.
3. Review any existing VAT certificate or declaration if the premises has mixed use. The percentage and supporting calculations still matter even though the qualifying rate temporarily becomes 0%.
4. Check the supplier’s October invoice and accounting import carefully. Where the electricity supply qualifies, HMRC treats the normal standing charge from the electricity supplier as part of that supply, so it should follow the same VAT treatment.
5. Make sure bookkeeping software does not keep posting 5% input VAT automatically after the supplier begins issuing 0% qualifying electricity invoices. Reconcile the VAT code to the actual invoice rather than relying on an old recurring rule.

Two common traps to avoid

First, do not apply the zero rate to public EV charging. HMRC says electricity supplied through public charging points remains standard-rated regardless of the quantity supplied. Secondly, do not extend the electricity relief to gas. The temporary change is specific to qualifying electricity in Great Britain; other qualifying domestic fuels continue at 5%.

What should a small business do now?

There is no new application process simply because the rate changes. The practical task is to confirm whether your premises already falls within the qualifying rules and whether your supplier has the information it needs. If your current bill shows 5% VAT, understand why. If it shows the standard rate but you believe the de minimis or another qualifying-use rule should apply, review HMRC’s guidance and raise the position with the supplier rather than changing the bookkeeping entry yourself.

For finance teams, this is also a useful reminder to review recurring VAT coding. A temporary rate change can create errors when bank feeds, supplier rules or accounting automations copy last month’s treatment without checking the new invoice. From October, the safest approach is simple: match the VAT entry to the supplier document, retain any qualifying-use evidence, and remember that the 0% period ends after 31 March 2027 unless the government changes the rules again.