Electricity VAT cut starts in Great Britain as energy price cap rises

Great Britain’s temporary VAT cut on qualifying electricity supplies began on 1 October 2026, lowering the tax rate to zero for six months as households enter a period of higher capped energy prices. HM Treasury says the cut makes Ofgem’s annualised price cap about £45 lower than it otherwise would have been. That figure is not a promise of £45 off any household’s bill this winter.

HM Revenue & Customs says the zero rate applies from 1 October 2026 through 31 March 2027 in England, Scotland and Wales. Qualifying electricity supplies in Northern Ireland remain subject to the reduced VAT rate of 5%. Ofgem says domestic gas also continues to carry 5% VAT, so the measure changes the tax treatment of electricity rather than removing VAT from the whole energy bill.

How the electricity VAT cut affects bills

The government presents the £45 figure as the reduction to the yearly Ofgem price cap, an annualised measure used to describe typical energy costs. The cut lasts six months, and the amount a household saves depends on its electricity use. HM Treasury says around a third of households have fixed tariffs and are outside the price cap rise; it expects suppliers to pass the VAT reduction on to those customers too. The announcement does not establish what any one customer has saved since the change began.

Ofgem says every household covered by its default-tariff price cap will pay less for electricity because the zero rate is reflected in its published figures. It adds that some households using more electricity than gas, or electricity alone, will see a bigger reduction in their bill from the tax change. The regulator also says the VAT treatment applies to some small businesses. Its description of the cap covers default-tariff customers paying by Direct Debit, standard credit or prepayment meter, among other arrangements.

Why the overall energy price cap still rises

The VAT cut arrives on the same day as a higher energy price cap. Ofgem says prices for a typical household using both electricity and gas and paying by Direct Debit rise by 4% from 1 October to 31 December 2026. The cap limits what suppliers can charge default-tariff customers for each unit of energy and for daily standing charges; it does not set an identical total bill for every home. Customers who have switched to fixed-rate tariffs are outside this cap change.

Ofgem attributes the increase to higher wholesale gas prices linked to the ongoing conflict in the Middle East. Its average default-tariff gas figures for Direct Debit customers are 7.97p per kilowatt hour and a 29.68p daily standing charge, including 5% VAT. The regulator cautions that high gas costs may prevent households from seeing the full effect of the electricity tax cut in their overall bill. Its new cap figures already include the electricity VAT change.

These simultaneous changes explain why a lower tax charge on electricity does not necessarily mean a lower combined gas and electricity bill. The £45 government estimate describes how much lower an annualised cap is because of the tax cut; it is neither the measured saving over the six-month tax period nor a forecast of the net change on an individual bill. Electricity consumption and a household’s tariff determine the effect, while the latest cap also reflects higher gas costs.

What happens after the winter cap period

The current Ofgem cap period ends on 31 December 2026, while HMRC’s temporary electricity zero rate runs through 31 March 2027. Ofgem says it reviews the cap every three months and plans to announce the level for January to March by 25 November 2026. That next decision will establish the regulated unit and standing-charge limits for the final three months of the VAT measure; today’s announcement does not establish what household bills will be then.

HM Treasury places the tax cut alongside earlier energy-bill support, saying £150 of costs were removed from bills earlier this year and that the separate £150 Warm Home Discount has been expanded to around six million households. Those measures should not be added to the £45 annualised VAT figure as though they were a single guaranteed payment. For the current cap period, the directly established change is a zero VAT rate on qualifying Great Britain electricity supplies, set against Ofgem’s higher typical dual-fuel price cap.