Key takeaways
- From 1 October 2026 the government has removed VAT from household electricity bills. The 0% rate is funded for six months, to 31 March 2027.
- Ofgem’s headline says the cap rose 4% to £1,723 a year, but that figure already has the electricity VAT taken out. Ofgem says the cost cannot be compared with earlier periods because of the change.
- The cut is electricity only. The government puts the saving at about £45 a year for a typical home. Gas keeps its 5% VAT.
- There is a cliff on 1 April 2027. If the cap does not move, electricity still rises about 5% that day, because the VAT comes back. At today’s rate 26.32p a unit becomes 27.64p.
The October 2026 price cap took effect on 1 October and Ofgem confirmed it on 26 August 2026. The number most people saw was simple: up 4%, to £1,723 a year for a typical dual-fuel home paying by Direct Debit. Underneath it sits a change that the 4% figure hides. The government has scrapped VAT on household electricity for the winter, and Ofgem has already folded that into the published rates. So the cap you are quoted this quarter is not built the same way as the one before it.
This page sets out what the VAT cut is worth in pounds and why the 4% headline is not a like-for-like comparison. It then covers the part almost nobody is pricing yet: what happens to your electricity bill on 1 April 2027 when the VAT is due to come back.
What actually changed on 1 October
Electricity normally carries 5% VAT, the reduced rate for domestic fuel. From 1 October 2026 to 31 March 2027 that rate is 0%. The Department for Energy Security and Net Zero says households do not need to do anything to claim it, because suppliers simply stop adding the 5% to the electricity part of the bill. It applies to fixed tariffs where you have already locked in a rate, and to prepayment meters, where the VAT was previously added when you topped up. Gas is untouched and keeps its 5%.
Here are the Direct Debit rates behind the cap, read from Ofgem on 18 September 2026.
| Charge | Jul to Sep 2026 | Oct to Dec 2026 | VAT position |
|---|---|---|---|
| Electricity unit rate | 26.11p per kWh | 26.32p per kWh | 5% VAT then, 0% now |
| Electricity standing charge | 57.19p per day | 54.83p per day | 5% VAT then, 0% now |
| Gas unit rate | 7.33p per kWh | 7.97p per kWh | 5% VAT throughout |
| Gas standing charge | 29.04p per day | 29.68p per day | 5% VAT throughout |
Why the 4% headline is not like-for-like
Ofgem is unusually blunt about this. Its own guidance says costs “cannot be compared directly to previous periods” this quarter, because the electricity figures no longer include VAT while the earlier ones did. That matters most for the electricity standing charge, which appears to have dropped by about 4%. Strip the VAT out of both quarters and the picture is different: the underlying standing charge barely moved, and the underlying unit rate rose by more than the sticker suggests.
| Electricity charge | Change you see on the bill | Change with VAT stripped from both quarters |
|---|---|---|
| Unit rate | 26.11p to 26.32p, up 0.8% | 24.87p to 26.32p, up 5.8% |
| Standing charge | 57.19p to 54.83p, down 4.1% | 54.47p to 54.83p, up 0.7% |
So the reason your electricity looks a little cheaper on paper this winter is mostly the tax coming off. The underlying price the supplier charges before tax has gone up.
The April cliff nobody is pricing
The 0% rate is funded only for the 2026 to 2027 financial year. The government has said any decision to keep it going will be taken at the Autumn Budget. If it is not extended, VAT returns to electricity on 1 April 2027. That creates a rise built into the calendar rather than the wholesale market. Even if Ofgem leaves the electricity cap exactly where it is, the price you pay goes up on 1 April, because 5% is added back on top.
| Electricity charge | Now, 0% VAT | If 5% VAT returns on 1 April 2027 | Added back |
|---|---|---|---|
| Unit rate | 26.32p per kWh | 27.64p per kWh | 1.32p per kWh |
| Standing charge | 54.83p per day | 57.57p per day | 2.74p per day |
Put in yearly terms, the government values the holiday at about £45 for a typical home. That is roughly what comes back on 1 April if the cut lapses. It is worth marking in the diary, because a spring rise of that size will land whatever the wholesale market does.
What the cut is worth to you
The saving scales with how much electricity you use, so it is not the same for every home. The government’s average is about £45 a year. A home that heats and cooks with electricity, or runs a heat pump, uses far more electricity than a gas-heated home and so keeps more of the 5%. A gas-heavy home saves less, because the cut never touches the gas half of the bill. The government also notes you might not feel the full benefit, since gas wholesale prices are still high and that keeps the overall bill up.
One more group gains that often misses out: prepayment customers. Because VAT used to be charged at top-up, the 0% rate reaches them automatically from 1 October, with nothing to claim.
How we worked this out
The unit rates and standing charges are Ofgem’s published national averages for Direct Debit, read at source on 18 September 2026. The VAT arithmetic is straightforward. To compare like with like we divided the July to September electricity rates by 1.05 to remove the 5% VAT they carried, then set them against the October rates, which carry none. For the April figures we added 5% back to the current rates. The £45 average saving is the government’s own estimate, published by the Department for Energy Security and Net Zero. No figure on this page is estimated beyond those stated rates.
Common questions
Do I need to do anything to get the electricity VAT cut?
No. From 1 October 2026 suppliers stop adding 5% VAT to the electricity part of your bill on their own. There is nothing to apply for.
Does it apply to fixed tariffs?
Yes. The government says it applies even where you have already locked in your rate on a fixed deal.
What about prepayment meters?
The cut reaches prepayment too. VAT is no longer added when you top up from 1 October 2026.
Does gas get the cut as well?
No. Only electricity goes to 0%. Gas keeps its 5% VAT.
How much will I save?
The government puts it at about £45 a year for a typical home. You save more if you use more electricity than gas, and less the other way round.
When does the VAT cut end?
It is funded to 31 March 2027. Any extension would be decided at the Autumn Budget. If it lapses, VAT returns to electricity on 1 April 2027.
More from Look Into
- UK running cost index, what everyday appliances cost to run at the current cap.
- What the Winter Fuel Payment buys in heating, the payment converted into kWh at the October cap.
- UK heating cost index, how heating methods compare per useful kilowatt hour.
This page recommends no products and carries no affiliate links.
Sources
- Ofgem, Changes to energy price cap between 1 October and 31 December 2026 (26 August 2026).
- Ofgem, Energy price cap unit rates and standing charges.
- GOV.UK (Department for Energy Security and Net Zero), Breathing space on your energy bill (26 August 2026).
Rates read at source on 18 September 2026. Prices are national averages for Direct Debit across England, Scotland and Wales and vary by region and payment type.