VAT removed from electricity bills: what it saves at different bill sizes
VAT is no longer charged on household electricity bills: the change has been in force since 1 October 2026. HM Treasury says it keeps the price cap £45 a year lower. UKCalc's calculation: a household with a £1,800 annual electricity bill saves £85.71 a year.
What happened
On 1 October 2026 the government removed VAT from household electricity bills. HM Treasury says this keeps the Energy Price Cap £45 a year lower than it would otherwise have been for the October to December price-cap period, and expects suppliers to pass the cut on to customers on fixed tariffs too. The announcement does not say how long VAT will stay off electricity, and it does not mention gas.
From 1 October 2026 the government removed VAT from household electricity bills.
Status: Confirmed and in force
HM Treasury (GOV.UK) — Energy bill tax cut starts today to give families breathing space, 1 October 2026
HM Treasury says the cut keeps the Energy Price Cap £45 a year lower than it would have been, and that savings depend on how much energy a household uses.
HM Treasury (GOV.UK) — Energy bill tax cut starts today to give families breathing space, 1 October 2026
Around a third of households are on fixed tariffs. The government expects suppliers to pass the VAT cut on to them too.
HM Treasury (GOV.UK) — Energy bill tax cut starts today to give families breathing space, 1 October 2026
GOV.UK lists home energy among the goods and services charged at the reduced VAT rate of 5%.
GOV.UK — VAT rates
What is established, and what is not
- VAT is off household electricity bills from 1 October 2026 (HM Treasury).
- HM Treasury puts the effect at £45 a year on the price cap.
- Before the change, home energy carried VAT at the 5% reduced rate (GOV.UK).
- How long the removal lasts: the announcement gives no end date and refers to the October to December price-cap period.
- Whether VAT is also removed from gas: the announcement refers only to electricity bills.
Nothing in the right-hand column is established. It is listed so that what is confirmed cannot be read as covering it.
What it means
The saving is the VAT that was inside each bill: about 4.8% of a VAT-inclusive bill, because the old rate was 5%. So it grows with use: a £1,800-a-year bill saves £85.71 a year, and the table below shows other bill sizes. HM Treasury's £45 corresponds to a typical bill of about £945 a year.
Who is affected
- Households paying for electricity, on the price cap or a fixed tariff
- Households budgeting for winter energy costs
Key numbers
Every figure below is a UKCalc calculation from the stated inputs, not a figure published by any source.
HM Treasury's £45 figure is consistent with a typical annual electricity bill of about £945 including VAT. HM Treasury does not state the bill it used.
A household with a £1,800 annual electricity bill saves £85.71 a year. The table shows the saving at other bill sizes.
What UKCalc calculated
The annual electricity bill implied by the £45 figure
£945 a year
- Method
- If removing 5% VAT saves £45, the VAT-inclusive bill is £45 × 105 ÷ 5.
- Inputs
- £45 a year (HM Treasury, 1 October 2026)
- VAT reduced rate 5% (UKCalc registry, from GOV.UK VAT rates)
- Assumptions
- The £45 is the VAT on a typical price-cap electricity bill; HM Treasury does not state the bill it used.
- Standing charges and unit rates are both in the bill, as both carried VAT.
VAT removed, by annual electricity bill
£85.71 a year
| Annual electricity bill (incl. former 5% VAT) | VAT removed a year | About a month |
|---|---|---|
| £600 | £28.57 | £2.38 |
| £900 | £42.86 | £3.57 |
| £1,200 | £57.14 | £4.76 |
| £1,800 | £85.71 | £7.14 |
- Method
- VAT inside a VAT-inclusive bill = bill × 5 ÷ 105. Removing the VAT saves exactly that amount.
- Inputs
- Annual electricity bills of £600, £900, £1,200 and £1,800 including VAT (illustrative)
- VAT reduced rate 5% (UKCalc registry, from GOV.UK VAT rates)
- Assumptions
- Bills are illustrative annual totals including the former 5% VAT.
- Suppliers pass the full cut on; usage is unchanged.
- Monthly figures are annual ÷ 12.
Assumptions and scope
- The £45 is the VAT on a typical price-cap electricity bill; HM Treasury does not state the bill it used.
- Standing charges and unit rates are both in the bill, as both carried VAT.
- Bills are illustrative annual totals including the former 5% VAT.
- Suppliers pass the full cut on; usage is unchanged.
- Monthly figures are annual ÷ 12.
- Applies to the whole bill, standing charge and unit charges alike.
Change any of these and the result changes. They are stated so the figure can be checked rather than taken on trust. How UKCalc produces its figures: methodology.
UKCalc's interpretation
The section below is UKCalc's analysis. It is separated from the facts above deliberately: it is arguable, and the facts are not.
Because the saving is a fixed share of the bill, about 4.8%, households that use more electricity save more in pounds. HM Treasury's £45 is a typical figure, not what every household will see.
UKCalc's reading of the evidence above, not a statement by any source.
What happens next
The announcement does not say how long VAT will stay off electricity, or whether gas is included. UKCalc will update this article when HM Treasury or HMRC publishes the detail.
Questions this answers
- How much does removing VAT from electricity bills save?
- Does the energy bill VAT cut apply to fixed tariffs?
- When did VAT come off electricity bills?
Sources
- HM Treasury (GOV.UK) — Energy bill tax cut starts today to give families breathing space · 1 October 2026
- GOV.UK — VAT rates
Statutory figures belong to the body that publishes them. UKCalc compiles and verifies them, and any calculation built on top is UKCalc's own — see the governed rates reference.