voluntary organisations, social enterprises and volunteering
voluntary organisations, social enterprises and volunteering
voluntary organisations, social enterprises and volunteering
-
What the VAT Cut on Energy Bills Could Mean for the Third Sector
Created: 21/07/2026
News/Events Category: General News
Prime Minister Andy Burnham has announced a cut on VAT on energy bills to help ease the cost of living crisis.
From 01 October 2026, VAT will be removed from energy bills, which will save an average household around £45 a year.
Almost all UK households currently pay VAT on their energy bill at a rate of 5%.
What could this mean for the third sector?
Alongside households, small businesses that qualify for domestic energy VAT relief and are not VAT registered, as well as eligible charities and residential care homes, should all see VAT removed from their electricity bills.
While your organisation may be eligible for this VAT cut, the savings could be swallowed up by potential bill increases.
- The energy price cap is expected to increase in October, according to analyst Cornwall Insight
- The ongoing war between the US and Iran could push up prices due to disruption in global oil and gas markets
- The VAT cut is only set to last six months as it stands, so it's not currently a long-term solution to bring down energy bills
- Those with the highest bills will see the biggest cash saving, meaning the benefit won't be felt equally
How do I know if my organisation qualifies?
Charities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses. They pay VAT at a reduced rate (5%) or the ‘zero rate’ on some goods and services.
Your charity pays 5% VAT on fuel and power if they’re for:
- Residential accommodation (for example, a children’s home or care home for the elderly)
- Charitable non-business activities (for example, free daycare for disabled people)
- Small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil)
If less than 60% of the fuel and power is for something that qualifies, you’ll pay the reduced rate of VAT on the qualifying part and the standard rate (20%) on the rest.
Qualifying fuel and power includes gases, electricity, oils and solid fuels (such as coal). It does not include vehicle fuel.
Next steps
Check if your organisation or group is eligible for the VAT cut on the UK government's website.
Even if you're not eligible, you may qualify for reduced rate VAT. Energy Action Group can help you with this. Click here to visit their website to find out more.
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