The electricity VAT cut for charities

The government recently announced that VAT on domestic electricity bills will be reduced from 5% to 0% from 1 October 2026. While much of the attention has focused on households, the changes also include an important benefit for many charities.

How will charities benefit?

The government has confirmed that the zero rate is not limited to domestic consumers. Its announcement states:

"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 practical terms, this means that charities currently paying the reduced 5% VAT rate on qualifying electricity supplies will see that rate fall to 0% from 1 October 2026.

The relief is expected to run for six months until the end of March 2027, alongside the wider fiscal measures announced this week. Whether it continues beyond this period will depend on the autumn budget.

Eligibility

Charities do not automatically qualify simply because they are charitable organisations. As with the existing reduced rate, eligibility depends on how the electricity is used rather than who is using it.  Broadly the relief applies where electricity is used for:

• Non business activities – genuinely non commercial activities that are separate from any trading operations.

• Relevant residential accommodation – such as care homes, children's homes and similar residential settings.

If part of a charity's premises is used for trading or other business activities, that proportion of electricity usage is unlikely to qualify for the reduced rate.

What about gas costs?

At present the government's announcement refers only to electricity. Until further guidance is published, it is reasonable to assume that gas and other qualifying energy supplies will remain subject to the existing 5% VAT rate.

Actions

This is an ideal opportunity to review your current position.  Charities should:

• Check their latest electricity bill to confirm the VAT rate currently being charged.

• Review whether their electricity usage meets the non-business or residential accommodation criteria.

• If currently paying the standard rate, contact their energy supplier to claim the existing reduced rate relief rather than waiting until October 2026.
• If already paying 5% VAT, confirm with their supplier that the reduction to 0% will be applied automatically from 1 October 2026.

• Keep monitoring announcements regarding gas supplies.

• Ensure finance teams and trustees are aware of the changes so potential savings are not overlooked.

If you have any questions or queries, please get in touch with your Swindells partner who will be able to advise you further.