5% VAT to be removed from electricity bills from 1st October 2026

Newdogowner36

I may be wrong but I thought VAT stands for value added tax which was originally for luxury goods, however as everyone needs Gas, Electric & Water to survive they are not luxury goods and the Government sneakily added VAT many years ago all these should be VAT exempt.

gpman

https://forums.moneysavingexpert.com/discussion/comment/82076689#Comment_82076689

Incorrect. Fuse Energy for one has no such term and quote all prices inclusive of VAT at the appropriate rate.

They bill that way too.

They then have a somewhat unique but nonetheless fully compliant method of calculating the VAT that is included within the bill they produce. As all my bills from Fuse seem to overcalculate the VAT included compared to a traditional method of accounting for VAT, hopefully I'll see a bigger than otherwise expected saving when they revise my tariff due to the removal of VAT on electricity.

Swipe

At least electric only Utility Warehouse bills on fixed monthly DD will now be easier to sanity check. Mine got much simpler when I switched to variable DD.

gpman

https://forums.moneysavingexpert.com/discussion/comment/82076753#Comment_82076753

Value Added Tax (VAT) applies to a vast range of goods and services in the UK, not just luxury items. While the standard rate is 20%, many everyday items (such as books, children's clothes, and most groceries) are rated 0%.

A reduced rate of 5% applies to things like child car seats, some mobility aids and currently domestic energy supply. Todays announcement will reduce the VAT on domestic energy supply to 0% for 6m from 01 October 2026.

There should be no VAT applied to domestic water bills - that is also 0% rated.

Only a few services are exempt from VAT such as healthcare, postage stamps, and insurance. Insurance has it's own Insurance Premium Tax (IPT) which has a standard rate of 12%, sometimes a higher rate of 20% or sometimes exemption (typically long term policies, such as life insurance or income protection)

MWT

https://forums.moneysavingexpert.com/discussion/comment/82076753#Comment_82076753

No, it was never only for luxury goods but at times in the past, much like the purchase tax it replaced, there have been different rates for different goods and services including a 'luxury rate' which no longer exists.

Scot_39

AFAIK yes at one stage energy was zero VAT rated - but it pretty much isn't - or wasn't - in other EU nations.

I think it was in the 90's following the big economic hit of the ERM crisis.

For recent years it has been set at the EU's 5% number

(although exemptions were awarded to some states at least as part of Ukraine crisis)

In fact in others it is or was much higher - often 20/21% - in others like Sweden 25% and in Hungary 27%.

See p12 - here - I am sure there are current versions - but google still claims the above 25/27 numbers are still good.

https://taxation-customs.ec.europa.eu/system/files/2021-06/vat_rates_en.pdf

TroubledTarts

I estimate I will save 5% 🤣 (electricity only)

debitcardmayhem

https://forums.moneysavingexpert.com/discussion/comment/82076833#Comment_82076833

Get a new calculator, you will save 4.76% 😘

gpman

https://forums.moneysavingexpert.com/discussion/comment/82076753#Comment_82076753

Trying desperately to avoid this being considered a political post, but hopefully this purely factual historic account of what happened when will be permitted.

It was a Conservative government led by Prime Minister John Major with his Chancellor Norman Lamont who first introduced VAT on domestic energy bills back on April 1, 1994.

The initial rate was 8% with the intention of later raising that to the standard rate, which was 17.5% at the time.

In 1997, it was a new Labour government led by Prime Minister Tony Blair with his Chancellor Gordon Brown who reduced the applicable rate to 5%. They had the intent to remove it entirely, but were unable to due to EU rules that required a minimum rate of 5% to apply to any goods or services that had previously had VAT applied.

It was a Conservative government led by Prime Minister Boris Johnson that achieved Brexit following a non-binding referendum on the subject in 2016 when a Conservative government led by David Cameron was in charge. Brexit was fully implemented on 01 January 2021, following an 11 month transition period.

As the UK are no longer in the EU, this has today allowed a Labour government led by new Prime Minister (with newly appointed Chancellor John Healy) to announce the removal of VAT on domestic electricity supply, albeit only currently for 6 months effective 01 October 2026 (whether it will be extended further will be be the subject of a later announcement)

Perhaps also worth remembering it was a Conservative government led by Prime Minister Edward (Ted) Heath, (with Chancellor Anthony Barber) who took us into the European Economic Community (EEC), which was often referred to as the Common Market, back in 1973. The Conservative government relied on the Parliamentary sovereignty principle to achieve this. The EEC eventually evolved into the EU.

TroubledTarts

https://forums.moneysavingexpert.com/discussion/comment/82076857#Comment_82076857

I have included a few Gregg's coffees in my calculation 😅🤣