The Value Added Tax (Supplies of Domestic Electricity) Order 2026

Published: Tue 8th Sept 26 Came into force: Thu 1st Oct 26

Department: HM Treasury
Made under: Value Added Tax Act 1994
Applies to: England, Wales, Scotland, Northern Ireland

Reduced the VAT rate on domestic electricity in Great Britain from 5% to 0% for the period between October 2026 and March 2027.

This Order introduces a temporary zero rate of Value Added Tax (VAT) for qualifying supplies of domestic electricity in England, Wales, and Scotland for a six-month period.

It modifies the Value Added Tax Act 1994 to reclassify electricity supplied for domestic use or non-business charity use from the 5% reduced rate to a 0% rate between 1 October 2026 and 31 March 2027.

The instrument applies to electricity suppliers and residential consumers in Great Britain, while specifically maintaining the 5% reduced rate for electricity supplies in Northern Ireland.

Arguments For

The Explanatory Memorandum states that the measure provides targeted relief for households during winter months when energy consumption is at its highest.
Proponents argue that since electricity is the most widely used fuel type, this change provides financial support to the greatest number of households.
The department reports that the measure will have a positive impact on charities and small businesses whose electricity use falls below statutory thresholds, as they will pay less VAT without incurring additional costs to benefit from the relief.
According to the Treasury, the use of a statutory instrument is the only available approach to ensure the tax changes take effect by the specified October deadline.

Arguments Against

The Order excludes Northern Ireland from the zero-rate relief, maintaining the 5% reduced rate there, which creates a territorial discrepancy in tax application within the UK.
HM Revenue and Customs acknowledges that electricity suppliers will incur one-off administrative costs to update their billing systems twice: once to implement the zero rate and again when the relief expires.
The department confirmed that no formal consultation was undertaken, which prevented external stakeholders from providing input on the policy's design or implementation prior to its enactment.
The temporary nature of the relief (six months) may lead to consumer confusion or administrative complexity when the rate reverts to 5% on 1 April 2027.

Citation, commencement and effect

1.-(1) This Order may be cited as the Value Added Tax (Supplies of Domestic Electricity) Order 2026 and comes into force on 1st October 2026.
(2) The modifications made by articles 2 to 4 have effect in relation to supplies made in the period beginning with 1st October 2026 and ending with 31st March 2027.

This section establishes the official name of the legislation and sets its commencement date as 1 October 2026.

It specifies that the tax changes only apply to electricity supplies made during the six-month window ending on 31 March 2027.

Modifications of the Value Added Tax Act 1994

2 The Value Added Tax Act 1994 is modified as follows.

This article provides the legal basis for amending the primary VAT legislation of the United Kingdom.

It acts as an introductory provision for the specific modifications detailed in the subsequent sections.

Zero-rating of supplies of domestic electricity: England and Wales and Scotland

3.-(1) Schedule 8 (zero-rating)(2) is modified as follows.
(2) The table in Part 1 (index) has effect as if, at the appropriate place, there were inserted-

"Domestic electricity: England and Wales and Scotland Group 24".

(3) Part 2 (the Groups) has effect as if, at the end, there were inserted-

"GROUP 24: SUPPLIES OF DOMESTIC ELECTRICITY: ENGLAND AND WALES AND SCOTLAND

Item No. 1

Supplies in England and Wales and Scotland of electricity for qualifying use.

NOTES

Meaning of "supplies in England and Wales and Scotland"

1.-.-(1) For the purposes of this Group electricity is supplied in England and Wales and Scotland if-

(a) it is to be treated as supplied in the United Kingdom by virtue of the Value Added Tax (Place of Supply of Goods) Order 2004(3), and
(b) it is supplied to a place, or to a recipient at a place, in England, Wales or Scotland.

(2) References in this paragraph to England and Wales and Scotland include the territorial sea of the United Kingdom.

Meaning of "qualifying use"

In this Group "qualifying use" means-

(a) domestic use, or
(b) use by a charity otherwise than in the course or furtherance of a business.

Supplies only partly for qualifying use

For the purposes of this Group, where there is a supply of electricity partly for qualifying use and partly not-

(a) if at least 60% of the electricity is supplied for qualifying use, the whole supply is to be treated as a supply for qualifying use, and
(b) in any other case, an apportionment is to be made to determine the extent to which the supply is a supply for qualifying use.

Supplies deemed to be for domestic use

A supply of electricity is deemed to be for domestic use for the purposes of this Group if it is made to a person at any premises where the electricity (together with any other electricity provided to the person at the premises by the same supplier) was not provided at a rate exceeding 1000 kilowatt hours a month.

Other supplies that are for domestic use

For the purposes of this Group supplies not within paragraph 4 are for domestic use if and only if the electricity supplied is for use in-

(a) a building, or part of a building, that consists of a dwelling or number of dwellings,
(b) a building, or part of a building, used for a relevant residential purpose,
(c) self-catering holiday accommodation,
(d) a caravan, or
(e) a houseboat.

Interpretation of paragraph 5

6.-.-(1) For the purposes of this Group "use for a relevant residential purpose" means use as-

(a) a home or other institution providing residential accommodation for children,
(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder,
(c) a hospice,
(d) residential accommodation for students or school pupils,
(e) residential accommodation for members of any of the armed forces,
(f) a monastery, nunnery or similar establishment, or
(g) an institution which is the sole or main residence of at least 90% of its residents,

except use as a hospital, a prison or similar institution or an hotel or inn or similar establishment.

(2) For the purposes of this Group "self-catering holiday accommodation" includes any accommodation advertised or held out as such.

(3) In paragraph 5 "houseboat" means a boat or other floating decked structure designed or adapted for use solely as a place of permanent habitation and not having means of, or capable of being readily adapted for, self-propulsion.".

This section inserts a new category (Group 24) into the VAT zero-rating schedule, applying to electricity in Great Britain.

It defines 'qualifying use' to include private dwellings, houseboats, caravans, and certain charitable activities.

It also establishes a 'de minimis' threshold where any supply under 1,000 kilowatt hours per month is automatically treated as domestic use, regardless of the actual nature of the premises.

Consequential modifications to Schedule 7A

4.-(1) Schedule 7A (charge at reduced rate)(4) is modified as follows.

(2) In Part 2 (the Groups), Group 1 (supplies of domestic fuel or power) has effect as if-

(a) in item 1(e), "electricity," were omitted;
(b) after item 1 there were inserted-

"2. Supplies in Northern Ireland of electricity for qualifying use.";

"Meaning of "supplies in Northern Ireland"

1A.-.-(1) Electricity is supplied in Northern Ireland for the purposes of item 2 if-

(a) it is to be treated as supplied in the United Kingdom by virtue of the Value Added Tax (Place of Supply of Goods) Order 2004,
(b) it is supplied to a place, or a recipient at a place, in Northern Ireland.

(2) References in this paragraph to Northern Ireland do not include any of the territorial sea of the United Kingdom.".

This article adjusts the rules for the 5% reduced VAT rate to ensure it no longer applies to electricity in Great Britain during the specified period.

It explicitly retains the 5% reduced rate for domestic electricity supplies in Northern Ireland.

This creates a temporary legal distinction between how electricity is taxed in Northern Ireland versus the rest of the United Kingdom.

Explanatory Memorandum PDF View Source

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