Zero-rate VAT on electricity: does it apply to businesses?

The short answer

From 1 October 2026 to 30 June 2027 a temporary zero rate of VAT applies to electricity in Great Britain, but only for supplies that already qualify for the reduced 5% rate: domestic use and charity non-business use. If your business uses electricity for trade, such as a shop, café, office, salon or workshop, your VAT stays at 20%.

Key facts

Point	Position
Start date	1 October 2026
Where	England, Scotland and Wales. Northern Ireland stays at 5%.
Fuels	Electricity only. Gas and other fuels stay at 5% where the reduced rate applies.
Who benefits	Supplies that would otherwise be at 5%: domestic use and charity non-business use
Standard business use	Unchanged at 20%
End date	30 June 2027. HMRC first announced 31 March 2027, but HMRC VAT Notice 701/19: fuel and power, updated on 28 October 2026, says Budget 2026 extended the zero rate to 30 June 2027.

After the zero rate ends, qualifying supplies return to 5%.

Who gets 0%?

HMRC's notice defines qualifying use in the same way as for the 5% relief. In practice, it can include:

• Genuine domestic use in a business building. For example, the flat above a shop where the electricity is billed on the business meter. The share of supply for the flat can qualify, subject to the 60% rule below.
• Small supplies (de minimis). Electricity up to an average of 33 kWh a day (roughly 1,000 kWh a month) per customer at each premises is treated as domestic use. A very small business that already pays 5% on that basis falls into this group.
• Charity non-business use. Where a charity makes no charge for an activity, it is generally non-business. A free community hall or a church building used for worship are typical examples. See what VAT charities pay on energy and whether a church qualifies.
• Certain residential accommodation. HMRC's list of eligible accommodation includes houses, flats, caravans, houseboats, hospices, student accommodation and self-catering holiday accommodation. It specifically says hospitals, prisons and hotels are not treated as residential accommodation for these purposes.

Who does not get it?

• Shops, cafés, restaurants, pubs, offices, salons, workshops, farms and other trading premises, for their business use.
• Hotels, because they are not treated as residential accommodation under HMRC's notice.
• A charity's trading activities, such as a charity shop selling goods. Selling for a charge is business activity, so standard rules apply.
• Public and workplace EV chargers, which are excluded from the small-supply relief.

Do not assume you qualify because you are a small business, a charity or a community group. The test is what the electricity is used for, not who you are.

Mixed use and the 60% rule

If your building has both business and qualifying use on one meter, the 60% rule applies. If at least 60% of the supply is qualifying use, the whole supply gets the lower rate. If it is under 60%, only the qualifying part does, and the rest stays at 20%. HMRC says these self-certification requirements are unchanged by the zero rate.

Worked example

A village hall run by a charity uses 8,000 kWh a year at 28p/kWh, so £2,240 before VAT (ignoring standing charge). It lets the hall for paid private parties for 30% of the use and uses it for free community activity for 70%.

• 70% is above 60%, so the whole supply is treated as qualifying use.
• At 5%, VAT would be £2,240 × 0.05 = £112.
• At the temporary zero rate it would be £0, a VAT difference of £112 over a full year, or about £9.33 a month for each month the zero rate applies (nine months from October 2026 to June 2027: 9 × £9.33 = about £84).

Change the split to 50% qualifying and the rule changes: 50% × £2,240 = £1,120 would be at zero while the other £1,120 would be at 20%, giving VAT of £224. Whether paid hiring counts as business use is a question for HMRC or your adviser, so treat this as an illustration of the arithmetic, not a ruling.

What do you need to do?

1. Check your current VAT rate on your bill. If it already says 5%, ask your supplier whether it is applying 0% to your qualifying use from 1 October 2026.
2. Confirm your certificate. Where you claimed the reduced rate by declaration, your supplier will rely on it. Make sure it is current and tells the supplier the percentage. See the declaration guide.
3. Tell the supplier if use changes. The declaration commits you to doing so.
4. Do not ask for 0% on normal business use. It would be wrong, and HMRC says a wrongly applied reduced rate can lead to undercharged VAT being repaid, and a penalty for an incorrect certificate.

Will the saving reach you?

HMRC's information notes that about 100 electricity suppliers must apply the zero rate and that any reduction in bills depends on suppliers passing the VAT saving on to customers. If you are a qualifying customer and your bill still shows 5%, ask the supplier why. Your supplier may need a few billing cycles to update its systems, so look at the VAT line on the first bill covering October.

If you are VAT-registered, the VAT you pay on business electricity is normally reclaimable, so 0% versus 20% matters less for cash flow than for a non-registered business. Qualifying domestic use and non-business charity use is where it bites. See can I reclaim VAT on business energy.

Why ordinary business use is left out

The measure is built on the existing reduced-rate rules, not on a new category of business support. It changes the rate on supplies that already qualify for 5%, which is why the eligibility questions are the familiar ones: is the electricity for a home, or for a charity's non-business activity? There is no general scheme this year to cut small-business energy bills, and the Energy Bills Discount Scheme ended on 31 March 2024. For what help does exist, see government help with business energy bills.

Next steps

• Read your bill's VAT line and your supplier's notes.
• If you have mixed use, work out the qualifying percentage with your records.
• For the full set of rates, read VAT and the Climate Change Levy, and for a direct answer see does zero VAT on electricity apply to my business.
• Run the numbers in our VAT and CCL calculator.