What will the electricity VAT Cut mean for Charities?
If you saw this government’s announcement last week, you’ll know the headline: VAT on domestic electricity bills is being cut from 5% to 0%, starting 1 October 2026. Most of the coverage is aimed at households, but there’s a detail buried in the announcement that charities need to know about.
How does the electricity VAT cut affect charities?
The government’s own wording confirms the zero rate isn’t just for households:
“Small businesses who qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate will also benefit.”
In plain terms: if your charity currently pays the reduced 5% rate on electricity, that rate is dropping to 0% from 1 October 2026, in the same way it applies to households. The relief is expected to run for six months, through to the end of March 2027, alongside the wider fiscal measures announced this week, though whether it’s extended further will depend on the Autumn Budget.
Eligibility is not automatic for charities
Using electricity for “charitable activities” does not automatically qualify you for the reduced rate. The relief has always depended on how the electricity is used, not who is using it. Broadly, it applies where electricity is used for:
- Non-business activities — genuinely non-commercial use, separate from any trading activity.
- Relevant residential accommodation — things like care homes, children’s homes, or similar residential settings
If your charity runs any kind of trading or business activity from the premises, that portion of your electricity use would likely not qualify, VAT cut or not.
What about gas?
Notably, the announcement only mentions electricity. Until the government says otherwise, it’s reasonable to assume gas and other qualifying energy supplies will stay on the existing 5% rate. We’d treat this as an assumption to revisit once more detail comes out, not a confirmed fact.
Reviewing your eligibility
If your charity is currently paying the standard rate of VAT on electricity, this is a good prompt to check whether you’ve been missing out on the 5% relief all along, a rate that’s about to become 0%. HMRC guidance on the existing relief is publicly available, and reviewing your eligibility now could mean real, recurring savings on top of whatever the new zero rate brings.
What actions should I take as a Charity?
- Look at your latest electricity bill and check what VAT rate you’re currently being charged.
- Map your electricity use against non-business and residential-accommodation criteria, don’t assume “charitable” is enough on its own.
- If you’re on the standard rate, contact your energy supplier now to claim the existing relief, don’t wait for October, since this is a pre-existing entitlement, not a new one.
- If you’re already on the 5% rate, confirm with your supplier that the drop to 0% will be applied automatically from 1 October 2026.
- Hold off on assumptions about gas, keep this on your radar rather than assuming it follows electricity.
- Share this with your finance team or trustees. VAT relief reviews are exactly the kind of thing that falls through the cracks between departments.
We’ll keep monitoring this as more detail emerges, particularly on the duration and whether gas gets similar treatment. If you would like support understanding whether the new zero rate applies to your charity, or if you need to make any changes to your invoicing, please don’t hesitate to contact us and we will be happy to assist.
