Key takeaways
- At Ofgem's medium usage value of 2,500 kWh a year, 0% VAT on electricity is worth £42.91 over twelve months, or £3.58 a month, at the October to December 2026 rates.
- Two numbers do the work on any bill: 1.316p per kWh and 2.74p a day on the standing charge. At 1,600 kWh that comes to £31.06 a year; at 3,800 kWh, £60.01.
- Electricity is 49.8% of Ofgem's £1,723 dual fuel cap, which is why the Economy 7 cap rose 1% in October while the dual fuel cap rose 4%.
- Northern Ireland keeps the 5% rate. Eligible households there get a £63 direct payment for 2026 instead, applied from 6 October 2026 and bundled with a separate Renewables Obligation cut.
- The zero rate runs to 31 March 2027, and the January to March 2027 cap had not been set when this was written, so only 92 of the 182 days have published rates.
VAT has been removed from electricity bills in Great Britain, and the question that follows is what it takes off yours. At Ofgem's medium usage value of 2,500 kWh a year, the answer is £42.91 over twelve months, or £3.58 a month. At the low usage value of 1,600 kWh it's £31.06. At the high one of 3,800 kWh, £60.01. Those are annual figures at the October to December 2026 rates, and the measure itself runs for six months. A second time-limited cost of living measure runs beside it: the bus fare cap 2027 holds single bus fares in England outside London at £2 for the calendar year.
The rate went from 5% to 0% on 1 October 2026. HMRC's policy paper is unambiguous about the window: "The measure will have effect from 1 October 2026 to 31 March 2027." Gas stays at 5%, and so does electricity in Northern Ireland. Across the UK, in other words, the electricity VAT cut reaches Great Britain only.
What the electricity VAT cut takes off your bill at three usage levels
Ofgem's energy price cap for October 2026 runs to 31 December and sets a direct debit electricity unit rate of 26.32p per kWh and a standing charge of 54.83p a day. Both are quoted without VAT, because there isn't any on electricity in this period. The note under Ofgem's own rate table says prices "include VAT on gas only and are rounded to two decimal places".
Take that unit rate, add 365 days of standing charge, and 5% of the total is what the zero rate removes.
| Annual use | Electricity bill at 0% VAT | VAT at 5% avoided over a year | Per month |
|---|---|---|---|
| 1,600 kWh (Ofgem low) | £621.25 | £31.06 | £2.59 |
| 2,000 kWh | £726.53 | £36.33 | £3.03 |
| 2,500 kWh (Ofgem medium) | £858.13 | £42.91 | £3.58 |
| 3,000 kWh | £989.73 | £49.49 | £4.12 |
| 3,800 kWh (Ofgem high) | £1,200.29 | £60.01 | £5.00 |
| 5,000 kWh | £1,516.13 | £75.81 | £6.32 |
The low, medium and high rows are Ofgem's Typical Domestic Consumption Values for a standard single-rate meter. If you've read an older guide that put a typical household at 2,700 kWh, that was the 2023 figure. Ofgem's 27 May 2026 decision cut medium to 2,500 kWh, low from 1,800 to 1,600 and high from 4,100 to 3,800, and the new values took effect on 1 July 2026. The stated reason was falling demand: the decision describes "sustained reductions in typical household demand".
Two numbers that work on any electricity bill
The table assumes you're an average. Your meter isn't. The arithmetic collapses to two constants you can run against your own annual statement.
- 1.316p on every kWh, which is 5% of the 26.32p unit rate.
- 2.74p a day on the standing charge, or £10.01 across a year, which is 5% of 54.83p.
Or, more bluntly: divide your net electricity bill by 20. VAT at 5% on a VAT-free amount is exactly a twentieth of it, so the saving scales with the bill and with nothing else. A household on 5,000 kWh avoids £75.81 a year. A flat on 1,600 kWh avoids £31.06. Same percentage, very different cash, and the gap between the two is wider than the whole saving on the smaller bill.
A bill that straddles the start date is apportioned. HMRC's brief tells suppliers that "Where a billing period includes 1 October 2026, suppliers may determine the VAT liability of supplies based on the date the energy is consumed". The word is "may", so a bill spanning September and October is split by whatever method the supplier adopts rather than by a prescribed one, and the same latitude applies at the other end of the window.
Why an electricity only cap moved 1% and a dual fuel cap moved 4%
Ofgem's headline in August was a 4% rise. The cap for a typical dual fuel household on direct debit went from £1,663 to £1,723, which the regulator described as "£60 per year (or £5 per month)". In the same letter to suppliers, the Economy 7 direct debit cap went from £1,039 to £1,046, a 1% rise. That figure is quoted against a single consumption value, 3,400 kWh on a multi-register electricity meter, with no gas figure beside it.
The gap between 1% and 4% is the VAT cut landing on different shares of a bill. Rebuild the dual fuel cap from the published rates at Ofgem's medium consumption values. Electricity at 2,500 kWh comes to £858.13. Gas at 9,500 kWh, at 7.97p a unit and 29.68p a day with its 5% still attached, comes to £865.48. The two total £1,723.61 against Ofgem's published £1,723, and the 61p is where two-decimal rounding in the rates goes.
So electricity is 49.8% of that bill. Zero-rating half a bill offsets about half as much of a wholesale increase as zero-rating all of one, and a cap quoted against electricity consumption alone picks up the undiluted version. Meanwhile the wholesale allowance rose 11% and now makes up 47% of the cap, which Ofgem attributes to "continued conflict and geopolitical instability in the Middle East". The same asymmetry runs in reverse when the rate reverts.
Where the official £45 comes from, and why the arithmetic lands on £42.91
Two official numbers sit next to each other and don't quite agree. The government's 21 July 2026 announcement said the change was "expected to take around £45 off the yearly Ofgem price cap in October". Ofgem's press release repeated the figure: "without the Government's intervention on VAT, this figure would have been around £45 higher." The arithmetic on the published October rates at 2,500 kWh gives £42.91.
Run the identical calculation at the 2,700 kWh value Ofgem retired on 1 July 2026 and it gives £45.54. Neither body publishes its working, so that is a reading rather than a fact. It's the reading that lands on the round number, and the £45 was first stated three weeks after the new consumption values took effect. A £2.63 difference doesn't change anyone's household budget. It matters if you're checking one official figure against another and wondering which consumption assumption is buried in it.
The electricity VAT cut in Northern Ireland, and the £63 that stands in for it
Northern Ireland doesn't get the zero rate. HMRC's fuel and power notice is explicit: "In Northern Ireland, qualifying supplies of electricity remain liable to VAT at the reduced rate of 5%." The government's July statement said "the NI Executive will receive comparable funding to enable it to support NI Households with the Cost of Living".
What arrived instead is the Household Electricity Discount Scheme. The Department for the Economy puts it plainly: "The value of the direct payment to each eligible household in Northern Ireland for 2026 is £63." Suppliers apply it from 6 October 2026 and there's no application to make.
£63 against £42.91 looks like Northern Ireland came out ahead, and that comparison doesn't hold. The Department's direction describes funding that reflects "75% of domestic Northern Ireland Renewables Obligation costs and support equivalent to the temporary six-month VAT reduction announced for Britain". That's two policies in one payment, with no published split between them, and the Renewables Obligation reduction is something Ofgem applied inside the Great Britain cap too, listing "the 75% reduction in Renewable Obligations" among the bill support measures already implemented there. How much of the £63 is the VAT-equivalent part is not on the public record.
Only 92 of the 182 days have a published rate
The window runs 1 October 2026 to 31 March 2027, which is 182 days. Ofgem sets the cap "every 3 months", so only the first 92 of those days have published unit rates. The January to March 2027 level had not been announced when this was written.
That makes the annual figures above a rate rather than a forecast of cash. What can be pinned down now is the standing charge element, because it doesn't depend on usage at all: at 2.74p a day, the first 92 days avoid £2.52 of VAT whether you switch anything on or not. Everything else depends on your meter and on a cap level that doesn't exist yet. Winter is also the wrong half of the year to assume a flat consumption profile, and these rate tables carry no seasonal breakdown, so halving an annual figure is an approximation rather than an answer.
What reverts on 1 April 2027
The electricity VAT cut is written as temporary and the documents agree on the date. The HMRC policy paper of 8 September 2026 gives the window as 1 October 2026 to 31 March 2027, and Ofgem's letter to suppliers says the same: "This change will apply to all bills, including those under the price cap, from 1 October 2026 to 31 March 2027."
Funding is the part worth reading closely. The government's 26 August statement says "The VAT cut has been funded for the 2026 to 2027 financial year, through the cancellation of the digital ID programme." A funded year is not an extended measure, and the policy paper adds that "The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event." Any extension is a Budget decision that has not been taken, and nothing published commits to one. The autumn Budget 2026 predictions are where it would have to appear.
If 5% returns on 1 April 2027, the arithmetic runs backwards at the same shape: 1.316p back on each unit at today's rate, £42.91 a year at medium usage, £60.01 at high usage. The April cap is set separately, so the cash depends on whatever unit rate is in force then rather than on the one in the table above.
The case against calling this a saving
The strongest objection is that nobody's bill went down. Ofgem's cap rose 4% in October, so a typical dual fuel household on direct debit pays £60 a year more than it did in September, not £42.91 less. On that reading the zero rate is an offset against an increase, and a household comparing its October statement with its July one sees a rise and no saving at all.
Both readings are arithmetically true and they measure different things. £42.91 is the difference between two tax rates on the same consumption. £60 is the difference between two quarters of wholesale cost. Critics of counterfactual savings are right that only one of those shows up on a bank statement, and a reader who refuses to count money they never saw is not being unreasonable. The counterfactual number is still the one that changes on 1 April 2027, which is why it's worth knowing its size.
What these figures cannot tell you
The table is built on national average rates, and the standing charge in particular is regional. Ofgem says that "The standing charge will be different depending on where you live", so the £10.01 a year of VAT sitting on it moves with your region. The unit rate varies by region too.
These figures also only measure the direct debit cap. Standard credit and prepayment customers have their own rates and their own cap levels, £1,861 and £1,678 for the quarter. The zero rate reaches all of them; the cash differs.
And the cap isn't a cap on a bill. Ofgem limits "the maximum amount your supplier can charge for a unit of energy and standing charge together" and "does not limit the cost of your total bill". Around 11 million households, about 35% of the total, are on fixed tariffs and outside the cap. The zero rate applies to their bills too, because VAT is a tax on the supply rather than a feature of the cap, but their unit rate is whatever their contract says, so none of the figures here tells them what they avoided. Households at pension age have a larger and separately means-tested line to check in the winter fuel payment threshold, which turns on income rather than on consumption. Households on a means-tested benefit have a second line against the same electricity bill, because warm home discount 2026 eligibility was fixed on 23 August 2026 and the £150 comes off electricity only.
One more boundary. The relief is defined on qualifying domestic use, and HMRC's notice sets the de minimis for small supplies at "Supplies of not more than an average rate of 33 kilowatt hours per day, 1,000 kilowatt hours per month". The same notice records that "the recharging of electric vehicles, when using public charging points is always treated as standard-rated for VAT, regardless of the quantity of electricity supplied". Charging on a public network sits outside this measure entirely. Road use is taxed on its own schedule from April 2028, when electric vehicle excise duty charges 3p a mile on a battery electric car.
What would change the conclusion
The January to March 2027 cap is the next thing that moves these numbers. A higher unit rate makes the zero rate worth more in cash and a lower one makes it worth less, because the per-unit saving is locked at 5% of whatever the rate turns out to be.
A Budget extension would change the horizon rather than the arithmetic. Six months becomes twelve, and £42.91 at medium usage stops being an annualised rate and becomes a year of avoided tax. The Office for Budget Responsibility has not yet scored the final cost, which is the signal to watch for whether an extension is being prepared.
A change to Ofgem's consumption values would move the headline without moving anyone's bill. That has already happened once this year, and Ofgem said so directly: the update "reflects revised assumptions about typical usage rather than a reduction in energy prices". Any future revision does the same thing to every figure in the table above while leaving your meter untouched.
Northern Ireland's arrangement also has a longer tail than Great Britain's. The discount scheme runs with "the first payment being made in autumn 2026 and subsequent payments in 2027 and 2028", while the zero rate has a single end date. Set against the running cost of a home, this is a small line: the true cost of owning a home sits mostly in items with no six-month window attached. Electricity VAT is the one that does, and it closes on 31 March 2027 unless a Budget says otherwise.