VAT cut on electricity bills: what it means for households

The government has announced VAT will be removed from household electricity bills this winter; here’s everything you need to know!

What is changing with VAT on electricity bills?

The VAT on electricity bills will be reduced to 0% from 1 October 2026. The government expects that by cutting the VAT paid on electricity, this should save people around £45 a year, although the actual saving will depend on individual electricity usage. The VAT cut will apply to all electricity tariffs, including fixed energy tariffs.

The cut will only apply to electricity bills, so if you’re on a dual fuel tariff, you’ll see the VAT reduction on the electricity section of your bill. You’ll still pay 5% VAT for your gas, and this will still show on your dual fuel bill.

Government expects that the removal of VAT will be applied to all tariffs, including standard variable and fixed rate. If you’re an EDF customer, we’ll automatically apply these changes to your bill, so you don’t need to get in touch, change your tariff, or update your energy account.

Who is affected by the VAT change in October?

The VAT change applies to household electricity bills in England, Scotland, and Wales.

Why is VAT being cut?

The government hopes that by helping reduce electricity bills, more people will be supported during the winter months.

Why do we pay VAT on energy bills?

VAT on energy bills is set by government policy; normally households pay 5% VAT for their electricity use. Energy falls into the goods and services category in the UK, which means it’s subject to VAT. The rate we pay depends on whether the energy is used in our homes (domestic) or for a business (non-domestic).

When will the change take effect?

The new VAT cut for electricity bills will take effect from 1 October 2026. Government has stated that the change is funded for this financial year, and that any further action, including funding for longer-term measures, will be taken up by them at the Budget.

How does this work with the price cap?

The government expects the cut to reduce the annual Ofgem price cap by around £45. However, if the price cap rises from 1 October, this could offset the £45 saving.

So, while the VAT part of your electricity bill is reduced, your total electricity may still rise, but not as significantly due to the VAT cut.

What does this mean for your energy bills?

If you’re on a standard variable tariff, your prices are linked to the energy price cap, which is expected to change in October. This means your bill could still rise, but the VAT cut should help reduce the amount you pay, compared to the amount it would have been without the VAT change. To get a better idea of how you may be affected in October by changes to the price cap, look at our price cap predictions.

If you’re on a fixed tariff, your unit rates and standing charges won’t be affected by October’s price cap, and the VAT cut will still be applied to the electricity you use from 1 October.

Next step for households

In most cases you don’t need to do anything. Your electricity supplier should automatically apply all the VAT changes from 1 October.

If you’re an EDF customer, we’ll apply the VAT cut automatically from 1 October.

You don’t need to call us or get in touch, change your tariff or update your energy account.

On a standard variable tariff? It’s worth checking if this is still your best way to pay for electricity; you can either get an energy quote to compare tariffs

If you don’t have a smart meter, do remember to regularly submit meter readings as this will help make sure you only pay for the energy you actually use

FAQs

How much VAT do households currently pay on electricity bills?

Households currently pay 5% VAT on electricity bills.

How much will I save from the VAT cut?

The government estimates you’ll save around £45 a year from the tax cut; but this also depends on how much electricity you use.

Will the VAT cut apply automatically?

Yes, EDF will automatically apply the VAT changes to your electricity bill.

Does the VAT cut apply to gas bills too?

No, this is only applied to electricity bills. If you’re a dual fuel customer, it’ll be the electricity part of your energy bill where the VAT will be reduced.

Can I save more money from switching tariff?

If you’re on a standard variable tariff, the rates you pay for energy may go up in October, so it’s probably a good idea to see if a different tariff may be more beneficial for your household. It’s always good to look for new energy deals and potentially switch energy supplier.

Does the VAT cut apply to other tariffs like EV, heat pump, etc.?

The October VAT will apply to all domestic electricity tariffs, including smart energy tariffs, EV tariffs, solar tariffs and air source heat pump tariffs. However, the VAT cut won’t apply to gas bills as it’s only the VAT on the electricity households pay that’s being cut. If you’re on an electricity only tariff, the VAT cut will also apply to you.

Written by Dan Alchin - Head of Policy and Regulation
Dan Alchin heads up EDF’s policy team focused on customers and the retail supply market. Prior to EDF, Dan worked at Energy UK, the trade association for the energy industry, in a number of senior positions.