What does the VAT cut mean for my energy bills?
We explain what’s changing with VAT and what you can expect from October.
From 1 October, VAT on domestic electricity will be reduced from 5% to 0% following a UK Government decision. Businesses and charities who already qualify for 5% VAT (as opposed to the regular commercial rate of 20%) will also see their VAT go to 0%.
Here’s what’s changing, how Good Energy will pass on the reduction, and what it could mean for your bills.
Is VAT on energy bills changing in 2026?
Yes, all households and some businesses currently pay VAT at a reduced rate of 5% on the electricity they use. But from 1 October 2026, the government will be temporarily reducing this to 0% for electricity bills. The change applies to all domestic electricity tariffs in England, Scotland and Wales.
For now, the VAT cut will last until 31 March 2027. The government will confirm at a later date whether they plan to extend the reduction.
The government estimates that removing VAT could reduce electricity costs for a typical household by around £45 a year. However, the exact amount you benefit will depend on how much electricity you use.
What Good Energy customers need to know:
At Good Energy, we’ll pass the VAT reduction on to our customers in full. You don’t need to do anything – the change will be applied automatically.
The VAT reduction only applies to electricity. If you also get gas from us, VAT will continue to be charged at 5% on the gas you use.
What does this mean for my energy bill?
VAT is just one of the costs that makes up your energy bill. Your prices are also affected by things like wholesale energy prices, the cost of running the electricity network and other costs involved in supplying energy to your home.
Wholesale energy prices have risen following conflict in the Middle East, which is contributing to higher energy prices. So, while removing VAT will reduce the amount you would otherwise pay for electricity, other changes to energy costs could mean that from 1 October your overall prices increase overall if you’re on a variable tariff.
Put simply: your electricity will cost less than it would have done without the VAT cut, but that doesn’t necessarily mean your overall bill will be lower than it is today. We’ll let you know about any changes to your energy prices and what they mean for you before they take effect.
Do I need to do anything?
No. If you’re already on a Good Energy tariff, we’ll automatically pass on the VAT reduction from 1 October 2026. You don’t need to contact us or make any changes to your account.
If you’re looking for more certainty over your energy prices, you may want to consider switching to a fixed tariff. A fixed tariff locks in your unit rates and standing charges for a set period, helping you know what rates you’ll pay even if energy prices change.
If you don’t have a smart meter, it’s a good idea to send us regular meter readings. This helps make sure your bills are based on the energy you’ve actually used. You can learn more about smart meter installation here. If you already have a smart meter but are unsure how to read it, you can read our guide here.
What happens next?
The VAT reduction is one of several recent government changes designed to reduce the cost of electricity.
We’ve long supported action to make energy more affordable. Reducing electricity costs is particularly important as more households switch from fossil fuels to cleaner technologies such as electric vehicles and heat pumps.
In July 2026, we launched a new report urging government to lower British energy bills for good through several measures including removing the link between the price of electricity and the price of gas. You can read it here.
We’ll continue to keep our customers updated as energy prices change and provide clear information about what those changes mean for your bills.
VAT reduction FAQs
From 1 October 2026, VAT on domestic electricity will be reduced from 5% to 0%. The change applies to electricity only, so VAT on domestic gas will remain at 5%.
Yes. We’ll pass on the VAT reduction in full from 1 October 2026. It will happen automatically, so you don’t need to do anything.
The government estimates that removing VAT from electricity could save a typical household around £45 a year.
However, £45 is an average rather than a guaranteed saving. The amount you benefit from will depend on how much electricity you use.
If you use more electricity than the typical household – for example, if you have an electric vehicle or heat pump – the value of the VAT reduction could be higher. If you use less electricity from the grid, your saving is likely to be lower.
The VAT rate on domestic electricity will reduce from 5% to 0% from 1 October 2026.
Not at this stage. The government has funded the change for the remainder of the 2026/27 financial year. Any longer-term changes will be considered separately by the government and we’ll update our customers if any longer-term changes are announced.
No. This change only applies to electricity changes. VAT on domestic gas VAT will remain at 5%.
The VAT cut applies to all domestic electricity tariffs, including fixed, variable, smart and time-of-use tariffs. It also applies to non-domestic customers already receiving the reduced rate of 5% VAT, as opposed to the typical commercial rate of 20%.
VAT is only one part of your electricity costs. Changes in wholesale energy prices and other costs involved in supplying electricity can increase the underlying price of energy.
Removing VAT helps reduce the impact of these costs, but it may not be enough to offset them completely.
Yes. If you’re looking for more certainty over the rates you pay, you may want to consider switching to one of our fixed tariffs. You can explore our available energy tariffs and find the option that works best for you.
For now, your quote will include VAT at the current rate of 5% on electricity. However, we’ll apply the correct VAT rate to your electricity based on when the energy is used, regardless of what your quote shows:
- Up until 1 October, the standard 5% VAT rate will apply to the electricity you use.
- After 1 October, you won’t be charged VAT on any electricity used.
Our Standard tariff rates are changing on 1st October 2027. We’ve used the new rates to calculate your quote.
Smart time-of-use tariff estimates are based on average off-peak usage patterns. Your actual costs may be different, depending on how much energy you use and when you use it. Your payments are reviewed regularly to reflect this.
