Zero-rated VAT on electricity

Many charities could see lower electricity costs from October 2026 following the Government’s decision to reduce VAT on qualifying electricity supplies to 0%.

For many charities, this change could result in a reduction in operating costs. However, it is important to remember that access to the relief depends on how electricity is used, rather than on the organisation’s charitable status.

Although we are still awaiting detailed legislation, the Government has indicated that the 0% rate will apply from 1 October 2026 to 31 March 2027. Any extension beyond that date is expected to be considered as part of a future Budget process.

Which charities could benefit?

The good news for charities already benefiting from reduced-rate electricity is that the Government has indicated there will be no major change to the existing eligibility criteria. So organisations that currently qualify for the reduced rate should generally be able to benefit from the new rules once they take effect.

A common misconception is that all charities are entitled to reduced-rate energy supplies, in reality relief is available only in specific circumstances.

Broadly, charities may qualify where electricity is used:

• Otherwise, than in the course or furtherance of a business; or
• In qualifying residential accommodation.

Some activities may qualify for relief. Others may not. The position often varies between buildings and uses. Charities carrying out significant business activities may still find that some electricity supplies remain subject to VAT at the standard rate.

Organisations currently benefiting from the reduced rate should also ensure that any declarations provided to their energy supplier remain accurate and up to date, as suppliers may continue to rely on these when determining the correct VAT treatment.

Review your VAT treatment

For many charities, the biggest opportunity may not be the new zero rate itself. It may be confirming that the correct VAT treatment is already being applied today.

Many organisations currently receive the reduced rate because they have provided their supplier with a declaration confirming that the electricity is used for qualifying purposes.

Charities should therefore consider:

• Whether their activities include qualifying non-business use.
• Whether they have any residential accommodation that may qualify for relief.
• Whether declarations provided to suppliers remain accurate and up to date.
• Whether a review of their eligibility identifies any historic periods where the reduced rate should have applied.

Do this changes apply to gas?

From what has been announced so far, the change seems limited to electricity supplies.

Until further details are published, the expectation is that qualifying supplies of gas and other fuel and power will continue to attract VAT at the existing reduced rate of 5%. Further detail should become available when the draft rules are released.