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Electricity VAT is being reduced to 0%: what this means for Home Energy customers

Electricity VAT is being reduced to 0%: what this means for Home Energy customers

From 1 October 2026, the Government will cut VAT on domestic electricity from 5% to 0%.

We’ll automatically apply the new rate to all eligible Home Energy household electricity customers. That means everyone on our variable electricity tariff is covered, with no action needed from you.

You don’t need to contact us, fill in any forms, switch your tariff or change a single thing on your account.

What is changing?

From 1 October 2026, VAT on domestic electricity drops from 5% to 0%.

The reduction covers eligible domestic electricity charges – that’s both the electricity unit rate and the standing charge. We’ll update this page if the Government makes any further announcements.

Will the reduction apply to my Home Energy tariff?

Yes. If you’re an eligible Home Energy household electricity customer on one of our variable tariffs, we’ll apply the 0% VAT rate automatically.

The VAT reduction will be applied on top of any other price changes that happen under the terms of your tariff.

You do not need to switch tariffs to benefit.

Do I need to apply or contact Home Energy?

No. This is not a rebate, account credit or application scheme.

We’ll make the change for you automatically. You do not need to:

  • contact us
  • complete any forms
  • change your tariff
  • update your payment method
  • make any changes to your account

Does the VAT reduction apply to gas?

No. The Government’s announcement covers domestic electricity only.

If Home Energy supplies both your gas and electricity, the reduction will apply to the electricity part of your charges. VAT will continue to apply to your gas at the rate that applies at the time.

How much could I save?

The Government estimates that a typical household on the Ofgem price cap will see an annualised saving of around £45 from October.

That’s a national estimate, not a guaranteed £45 payment or account credit. Your actual saving will depend on:

  • how much electricity you use
  • your tariff and prices
  • how long you remain on the tariff
  • any other price changes during the period

Customers who use more electricity are likely to save more, while those who use less are likely to save less.

What the change from 5% to 0% actually means

At the moment, 5% VAT is added to the electricity part of your bill. From 1 October 2026, that 5% is removed, so you simply pay for the electricity you use — no VAT on top.

For example, if your electricity charges (unit rate and standing charge) come to £50 before tax, the 5% adds £2.50. With 0% VAT, that £2.50 is no longer charged.

It’s not a flat 5% discount on your whole gas and electricity bill. It’s the removal of the 5% tax that applies to your eligible electricity charges only.

How will the reduction appear on my bill?

We’ll automatically apply 0% VAT to your eligible domestic electricity charges from 1 October 2026.

If you get a combined bill for gas and electricity, you’ll see different VAT treatment for the two fuels because the reduction only applies to electricity.

Will my monthly Direct Debit reduce?

The VAT cut will make your electricity cheaper than it would otherwise have been. However, your monthly Direct Debit may not change straight away.

Your Direct Debit is a regular payment towards your energy account — it isn’t a bill for one specific month’s usage. When we review it, we take into account things like:

  • your account balance
  • the amount of energy we estimate you’ll use over a year
  • your tariff rates
  • the way your consumption typically rises and falls with the seasons

If your Direct Debit does need to adjust, we’ll let you know at least 10 working days before we take the new amount. There’s no need to get in touch with us just because of the VAT announcement.

Does this mean my overall energy bill will definitely fall?

Not necessarily. The VAT reduction makes your electricity charges lower than they would have been, but your overall bill can still be affected by:

  • your actual gas and electricity consumption
  • changes to your variable tariff prices
  • changes to the Ofgem price cap
  • your account balance
  • higher energy use during colder months

Even if another factor causes your overall bill to rise, you’ll still benefit from paying 0% VAT instead of 5% on your eligible domestic electricity charges for as long as the reduction applies.

For further information, you can read the Government’s announcement.

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