VAT cut on energy bills - What it means for you

VAT on energy bills is changing on 1 October

The government is cutting VAT on household electricity from 5% to 0% from 1 October 2026. If you're with OVO, you don't need to do anything – we'll take this off your electricity prices automatically. It doesn't apply to gas, and it doesn't apply in Northern Ireland.

For the full breakdown – who's eligible, how it affects the price cap, and what happens after the cut ends – read our guide: VAT cut on energy bills: what it means for you.

The government estimates this will take around £45 off the yearly Ofgem price cap in October. Though how much you actually save will depend on how much electricity you use.

The VAT cut is only for electricity, not gas

From 1 October 2026, VAT on energy prices will be 0% for electricity and 5% for gas.

If you get both gas and electricity from the same supplier, you’ll only see the VAT saving on the electricity part of your bill.

All homes are eligible for reduced VAT on energy prices

The VAT cut applies to all domestic electricity tariffs, whether you’re on a fixed or standard variable tariff, and whether you’re a new or existing customer. The VAT cut applies in England, Scotland and Wales.

The government expects all energy suppliers to pass the VAT reduction on to all customers. If you’re with OVO, we’ll automatically remove VAT from your electricity prices from 1 October 2026.

How does the VAT cut works with the price cap?

The energy price cap is set to change on 1 October 2026, the same day VAT on electricity prices drops to 0%.

The government estimates the VAT cut will reduce the yearly Ofgem price cap by around £45. But the price cap can still go up or down. If electricity prices rise from 1 October, your bill could still go up. The VAT cut means you’ll pay less than you would have without it. It doesn’t guarantee that your bill will be lower overall.

Will I see the VAT cut on my next bill?

You’ll get 0% VAT on any electricity you use from 1 October 2026. For electricity used before 1 October, VAT will be at 5% – even if your bill arrives after this date.

Will exit fees be reduced too?

Yes. Exit fees include VAT, so your electricity exit fee VAT will drop to 0% on 1 October 2026. The rate you pay depends on the exact date you switch suppliers.

What happens after the VAT cut ends?

No end date has been set yet. We’ll update this page as soon as the government shares any news.

You can also check out this article from OVO for more information.