Energy VAT Cut

From 1 October, households won’t have to pay tax on their electricity usage. Currently, energy bills are broken down into standing charge (a flat day rate), unit rate (per unit of energy used), plus a 5% VAT charge. This VAT will now be removed for electricity charges, but not for gas bills. This means that, if you pay for both gas and electricity, then you will still see the 5% VAT charge on your bill, but it will only be on the gas portion of your bill.

The VAT cut will come into effect from 1 October, which is when the new price cap will also start. Currently, we don’t know what energy prices we will see from this date, as Ofgem will announce the new price cap at the end of August. However, current predictions are that energy prices will increase for the winter period. This, along with household energy usage generally increasing in the colder months, means that you may not notice your energy bills go down from the VAT cut, but it will help take some pressure off of the likely price increase.

The good news is that, because this is a VAT cut and not a price reduction, it has to be passed on to all domestic customers – including those who are already on a fixed tariff, and some charities and small businesses. The VAT cut has been announced to run until the end of March, to coincide with the current financial year, which will see us through two price cap changes (1 October and 1 January).

If you would like to learn more about your energy bills, our expert energy advisors can give you personalised advice on your energy usage, tariff and answer other energy-related questions.

‍