0% VAT on electricity: what business customers need to know
27 August 2026
You may have already heard the news about upcoming VAT reductions on energy bills for homes – but the savings don’t stop there. From 1st October, VAT on business electricity will also be reduced, allowing eligible customers to benefit from this additional support. Here, we will review what’s changing, who can benefit, and what you need to do.
How is VAT for business electricity changing?
In short, businesses currently paying 5% VAT on their electricity bills will see this rate reduced to 0% on electricity used from 1st October. For eligible British Gas business electricity customers across all tariffs, we’ll automatically apply the reduced rate once it comes into effect. However, it’s important to note that not all customers qualify. Let’s take a closer look at who is eligible below.
Which businesses are eligible for the new reduced VAT rates?
Not everyone will be affected by this change. Businesses currently charged the standard VAT rate (the majority of our customers) will continue with their existing arrangement. There are two main groups who will see a reduction in VAT:
Businesses who don’t use a lot of electricity
Eligibility depends on your actual consumption, but broadly speaking, if you use less than 33kWh of electricity per day on average, you may qualify for reduced-rate VAT. This might apply to you if you’re an independent retailer, small office, or run a small professional services firm for example.
Organisations eligible due to their status or premises type
Some organisations qualify for reduced-rate VAT on their electricity supply due to their status, or the way their premises are used. This includes certain charities and non-profit organisations, as well as some residential and mixed-use properties.
How will this impact my bill?
The exact impact on your bill will depend on your eligibility and how much electricity your business uses. If you qualify for the new 0% VAT rate, you may see a small reduction in your electricity costs from 1st October.
However, VAT is only one part of a business energy bill. Your overall costs also take into account factors such as electricity consumption, wholesale energy market prices, non-energy costs, and what type of contract you’re on.
That’s why it’s so important to regularly review your energy arrangements. Taking time to understand your usage and check that your contract still meets your needs can help you stay on top of your energy spend and make informed decisions for your business.
What do I need to do?
If you’re already receiving reduced-rate VAT on your electricity supply, you don’t need to do anything – the new rate will be applied automatically from 1st October if you’re eligible.
If you’re unsure whether you qualify, or you think your business may be eligible but isn’t currently receiving reduced-rate VAT, there are a few simple steps you can take:
Check your electricity bill to understand your average daily consumption.
Complete a VAT declaration form if you haven’t already done so.
Contact your energy supplier if you’re unsure about your eligibility or the information you’ve provided.
Make sure you’re paying the right VAT rate and taking advantage of any available savings by checking your eligibility today.
In this article
How is VAT for business electricity changing?
Which businesses are eligible for the new reduced VAT rates?
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The views, opinions and positions expressed within the British Gas business Blog are those of the author alone and do not represent those of British Gas. The accuracy, completeness and validity of any statements made within this blog are not guaranteed. British Gas accepts no liability for any errors, omissions or representations. The copyright in the content within the British Gas business Blog belongs to the authors of such content and any liability with regards to infringement of intellectual property rights remains with them. See the Fuel mix used to generate our electricity. Read about making a complaint about your business energy.
