Electricity VAT Cut October 2026: What You Actually Save

VAT on domestic electricity falls from 5% to 0% on 1 October 2026. The government announced the cut on 21 July 2026. Confirming the October cap on 26 August, Ofgem said that without it the cap would have been around £45 higher. It runs until 31 March 2027.

Two things about it are widely misunderstood. It is already priced into the October cap, so it is not an extra saving on top. And unlike a cap change, it reaches households on fixed tariffs as well.

Quick answer

• The cut is already inside the October price cap figure. Do not subtract £45 from the headline again.
• It applies to electricity only. Gas stays at 5% VAT, so gas-heated homes save less.
• Fixed-tariff households benefit too, which is unusual for an energy policy change.
• It is temporary and currently ends on 31 March 2027.

Jump to

• What is changing, and when
• How much will you actually save?
• It is already in the October price cap
• Fixed tariffs benefit too
• Electricity only, so gas homes save less
• What happens on 1 April 2027
• How to check your supplier passed it on

What is changing, and when

Domestic energy has been taxed at a reduced VAT rate of 5% for many years. From 1 October 2026, the rate on domestic electricity drops to 0%. Gas is not included and stays at 5%.

The measure was announced on 21 July 2026 as a cost-of-living step ahead of winter. The Treasury estimates it costs around £850 million in 2026-27, funded by cancelling the planned Digital ID programme. It is set to run to 31 March 2027, the end of the financial year, with any extension decided at the Autumn Budget.

The government has said it expects suppliers to pass the full saving to customers.

How much will you actually save?

Ofgem puts it at about £45 a year. Our own calculation from the confirmed October rates lands in the same place, and shows how much it moves with usage.

The October electricity rates are set at 0% VAT. Adding 5% back shows what the same electricity would have cost under the old rate, which is the saving.

Using the confirmed October electricity rates of 26.32 p/kWh and a 54.83 p/day standing charge:

The pattern matters more than the exact figure. The saving scales with how much electricity you use. A high-electricity household saves substantially more than the headline, and a low-electricity household saves less.

To see the number for your own usage rather than a typical household, upload your bill to Taupia. It reads your actual kWh rather than assuming an average home.

It is already in the October price cap

This is the single most common error we expect to see repeated.

Ofgem sets the cap using the VAT rate that will apply during the cap period. Because the zero rate starts on 1 October, the same day the new cap starts, the October price cap is already roughly £45 lower than it would otherwise have been. Ofgem said so explicitly when it confirmed the cap at £1,935 on the like-for-like basis, or £1,723 on its own.

So the cut is not a discount applied on top of the announced figure. It is one of the reasons the announced figure is not higher. If you subtract £45 from the headline cap, you will be double counting.

Fixed tariffs benefit too

Most price cap news is irrelevant if you are on a fixed deal. Your unit rates are contractually fixed, so a cap change does not move them.

VAT is different. It is a tax on the electricity you buy, not a term of your tariff. The rate applies whatever deal you are on, and the government expects suppliers to pass the reduction through to fixed-tariff customers as well.

If you are on a fix, this is the rare energy announcement that should show up on your bill without you doing anything.

Electricity only, so gas homes save less

The cut covers electricity only. Gas remains at 5% VAT.

That produces an uneven outcome. A home heated by gas spends a large share of its energy budget on the fuel that did not change, so it sees a smaller proportional benefit. A home with electric heating, a heat pump, or an electric vehicle sees a larger one.

Ofgem's own confirmation makes the split stark. Gas bills rise about 8% in October, but households that do not use gas see less than 1%, because electricity stays broadly stable and Ofgem credits the VAT cut for that. The electricity standing charge also falls, from 57.19p to 54.83p a day.

If you heat with gas, the VAT cut offsets only a small part of your increase. If you are all-electric, it is most of the reason your bill barely moves.

What happens on 1 April 2027

The zero rate is currently legislated to end on 31 March 2027. Unless it is extended, VAT on domestic electricity returns to 5% on 1 April 2027, which would add back roughly what it took off.

This matters if you are choosing a fixed deal now:

• Ask what VAT rate a quoted annual cost assumes, and for which months.
• A fix running past April 2027 spans both VAT regimes, so a single quoted annual figure may flatter the later part of the term.
• Do not treat the current saving as permanent when comparing a two-year fix against a one-year one.

Any extension is expected to be decided at the Autumn Budget.

How to check your supplier passed it on

From your first bill covering October onward:

1. Find the VAT line on your electricity bill or statement. It should show 0% or £0.00 for electricity supplied on or after 1 October 2026.
2. Check that gas still shows 5%. That is correct, not an error.
3. If you pay a fixed monthly Direct Debit, the saving may show as a slower-growing balance rather than a lower payment. Ask for a review if your payment does not reflect it.
4. If your bill still shows 5% VAT on electricity after 1 October, raise it with your supplier and ask for a corrected statement.

For the confirmed cap figures the VAT cut is already built into, see our October 2026 price cap breakdown and the UK energy price cap guide.