Great Britain: Temporary Zero VAT on Fuel & Power 2026-2027

• From October 1, 2026, to March 31, 2027, Great Britain will implement a temporary zero-rate VAT on domestic electricity, while other domestic fuel and power supplies, such as gas, will remain at 5% VAT.
• This change, announced on July 21, 2026, applies only to England, Scotland, and Wales, with Northern Ireland maintaining a 5% reduced VAT rate for qualifying supplies.
• Under the VAT Act 1994, fuel and power supplies are generally standard-rated unless eligible for a reduced rate or export, with heat and power classified as goods.
• Contractors billing consumers for work that would otherwise be reduced-rate must charge standard VAT, and sub-contractor supplies to energy providers are also standard-rated.
• Certain wholesale gas and electricity transactions, along with construction services for energy infrastructure, are subject to domestic reverse charge rules, requiring careful compliance.

Effective from October 1, 2026, through March 31, 2027, a zero-rate VAT will apply to qualifying supplies of domestic electricity across England, Scotland, and Wales, while other domestic energy uses, such as gas, will remain subject to the reduced rate of 5% VAT.

The UK government has announced a significant, albeit temporary, alteration to Value Added Tax (VAT) rates for domestic fuel and power supplies within Great Britain. Effective from October 1, 2026, through March 31, 2027, a zero-rate VAT will apply to qualifying supplies of domestic electricity across England, Scotland, and Wales, while other domestic energy uses, such as gas, will remain subject to the reduced rate of 5% VAT. This measure, publicly declared on July 21, 2026, aims to provide a period of relief for consumers on their energy costs.

During this six-month window, all eligible domestic electricity supplies in Great Britain will be subject to 0% VAT. It is crucial for suppliers and consumers to understand what constitutes 'qualifying use' to correctly apply this new rate. This temporary change specifically targets domestic consumption, ensuring that households benefit from the reduced taxation on their energy bills.

Conversely, the VAT treatment for qualifying supplies of electricity in Northern Ireland will remain unchanged. These supplies will continue to be subject to the reduced rate of 5% VAT, distinguishing the regional application of these energy tax policies. The criteria for what constitutes a qualifying supply itself has not been altered, only the applicable VAT rate for Great Britain.

The overarching legal framework governing VAT on fuel and power is established by the VAT Act 1994 (VATA 1994). Under this legislation, supplies of fuel and power are generally subject to the standard rate of VAT. Exceptions to this rule include eligibility for a reduced rate under Schedule 7A of the Act or if the supplies are exported outside the UK, adhering to conditions detailed in VAT Notice 703.

For VAT purposes, the supply of heat, power, refrigeration, or ventilation is legally classified as a supply of goods, as stipulated in VATA 1994 Schedule 4 Paragraph 3. This classification dictates that the rules concerning the time and place of supply align with those applicable to goods, rather than services. The reduced rate of VAT typically applies to supplies of fuel and power designated for 'qualifying use,' a concept further elaborated within the relevant HMRC guidance.

Charges that form part of the payment for a supply of fuel and power are also considered under these VAT rules, provided they meet specific criteria. However, if less than 60% of a supply is for qualifying use, only that qualifying portion benefits from the reduced rate, with the remainder being standard-rated. This nuanced approach requires careful assessment by suppliers to ensure accurate VAT application.

The application of VAT becomes more intricate when third-party contractors are involved in the supply chain. If a contractor, who is not the direct supplier of fuel and power, issues a bill to a consumer for work that would have qualified for the reduced rate if invoiced by the primary supplier, the contractor must charge the consumer VAT at the standard rate. Furthermore, supplies made by sub-contractors to the main fuel and power suppliers are not eligible for the reduced VAT rate and are always standard-rated.

Beyond direct consumer supplies, certain wholesale transactions involving gas and electricity are subject to a domestic reverse charge within the UK. This mechanism, distinct from the VAT treatment of domestic supplies to end-users, is detailed in Section 3 of VAT Notice 735. Businesses involved in these wholesale energy transactions must understand and apply this reverse charge procedure correctly to ensure compliance.

Additionally, the construction sector faces its own reverse charge rules that can impact projects related to gas and electricity infrastructure. Companies undertaking or procuring construction services for such infrastructure must ascertain when the VAT domestic reverse charge for building and construction services applies. Specific guidance on the reverse charge treatment for construction works on gas and power infrastructure is available in the 'Reverse charge treatment for utilities' section of the VAT reverse charge technical guide, highlighting the need for vigilance in these specialized scenarios.

Lawyers and compliance officers must advise clients on the temporary zero-rate VAT for domestic fuel and power supplies in Great Britain (Oct 2026 - Mar 2027), ensuring compliance with qualifying use criteria and understanding the differing rules for Northern Ireland and specific reverse charge scenarios.

Source: Original reporting via GOV.UK guidance