Small estate agency branches and other low-energy business premises could benefit from the Government’s temporary removal of VAT from electricity bills according to accountancy firm Price Bailey.
Last week Prime Minister Andy Burnham announced that VAT on domestic electricity would fall from 5% to zero from 1 October for the remainder of the 2026-27 financial year.
Although presented as household support, existing VAT rules automatically treat sufficiently small electricity supplies as qualifying for the reduced rate, irrespective of the building’s use.
The threshold is an average of no more than 33 kilowatt hours a day, or 1,000 kilowatt hours a month, supplied to a customer at an individual premises.
BUSINESS ELIGIBILITY
Price Bailey says nothing in the initial announcement expressly excludes businesses satisfying those conditions, potentially extending the zero rate to small offices and other modestly powered premises.
Further legislation or HM Revenue & Customs guidance will be needed to confirm exactly how the temporary relief will operate.
Any saving would be most meaningful for businesses that cannot recover all their input VAT, including firms below the VAT registration threshold. Fully VAT-registered businesses making taxable supplies can generally reclaim VAT paid on electricity, meaning their net benefit may be limited.
The measure applies across Great Britain but not Northern Ireland, which remains subject to separate arrangements connected to European VAT legislation.
The Government announcement estimates that removing VAT will cut approximately £45 from the annual Ofgem household price cap.
FURTHER MEASURES
Greg Mayne (main picture), VAT Partner at Price Bailey, says: “As the UK has left the EU, it is no longer bound by European tax legislation, so with the exception of Northern Ireland, it has greater flexibility to create new tax rates such as the new zero rate for domestic electricity charges.
“As Mr Burnham has stated that his leadership will be of a ‘cost-of-living government’, there may be further short-term tax changes like this.
“While this announcement will provide welcome support for many households over the winter months, it also demonstrates the Government’s willingness to use targeted tax interventions to address cost-of-living pressures.”
A House of Commons Library briefing found UK household electricity prices were 23% above the EU average during the first half of 2025 and higher than every member state except Germany.
