Zero VAT on electricity from 1 October: which pub supplies actually qualify

Zero VAT on electricity from 1 October: which pub supplies actually qualify

From 1 October, VAT on domestic electricity in England, Scotland and Wales drops from 5% to zero. It stays there until 31 March.

Most of the coverage has treated that as a household measure, which is fair enough, because that is who it was aimed at. But one line in the government's own announcement extends it further: businesses already receiving the reduced 5% rate on electricity, including through the existing VAT certificate and declaration process, get the 0% rate too.

For most pubs it will change nothing, and this post is going to be straight about why. For a minority it is money this winter. For a smaller group it is a job to do in the next four weeks.

What has changed

The reduction was announced on 21 July and runs from 1 October 2026 to 31 March 2027. It is funded for this financial year, so whether it continues past March is a Budget decision rather than a settled position.

Three limits on it, straight away.

It applies to electricity only. Gas stays at 5% where a supply qualifies for the reduced rate, and at 20% where it does not.

It applies to Great Britain. Northern Ireland is excluded, because VAT rules there still follow the Windsor Framework, and the Executive receives comparable funding instead.

And it applies to supplies that already qualify as domestic use. It does not turn a standard business supply into a zero-rated one. A pub paying 20% on its main meter on 30 September will still be paying 20% on 1 October.

Ofgem's price cap rises 4% on the same day, to £1,723 a year for a typical household. Without the VAT change the cap figure would have been roughly £45 higher.

The two ways a supply counts as domestic

"Domestic use" describes how HMRC classifies a supply, not the sort of building it sits in. A business supply can reach that classification by either of two routes.

The automatic one, which needs no paperwork

Any electricity supply of 1,000 kWh a month or less is always treated as domestic use, whatever it powers. HMRC states the same limit as 33 kWh a day. For piped gas the equivalent is 4,397 kWh a month. No form, no certificate, nothing to apply for: the supplier should simply be charging the reduced rate, and no Climate Change Levy.

Two things about that threshold catch people out.

It is tested per premises, not per meter. Where a site has more than one meter, they are added together for the test, so a small second meter does not get an allowance of its own if the site as a whole is over.

And a trading pub's main meter clears 1,000 kWh a month without trying. A single walk-in and a cellar cooler will do it. So if you are reading this hoping the pub's main supply qualifies, it almost certainly does not.

The one that needs a certificate

Where part of a supply runs domestic accommodation, most often the licensee's flat, that share should be at the reduced rate with no levy on it. If 60% or more of the supply is domestic use, the whole supply qualifies. Below 60%, the supplier apportions and only the domestic share benefits.

Be realistic about the arithmetic here. The flat above a trading pub is rarely 60% of what the site burns, so the whole-supply outcome is uncommon. Apportionment on the domestic share is the normal result, and it still comes off the bill.

What decides it is administrative. A supplier will only apply this if a certificate of qualifying use is held on file. Without one it is correct to charge 20% on everything, and in our experience most sites have never sent one.

So where does this bite?

Not on the main meter. On the supplies nobody reads a bill for.

The separate meter on an outbuilding. A cellar block on its own supply. A flat with its own meter. A site that has been closed for a season and is drawing next to nothing. Function rooms, cottages and annexes on their own supplies. Anything that quietly sits under 1,000 kWh a month while being billed at 20% plus levy because nobody has ever looked at the VAT line on that particular bill.

Those supplies should already be at 5% with no CCL. From 1 October they should be at zero.

The check takes one bill per meter point. Find the VAT percentage, and look for whether a Climate Change Levy line is present. If a low-consumption supply is showing 20% and a levy line, the rate is wrong, and it was wrong before this announcement.

Why 1 October is the date that matters

If you have a domestic share on site and have never filed a certificate, the value of doing it just went up.

Until now, getting a supply onto qualifying use moved the electricity VAT from 20% to 5%, a 15 point difference, and removed the Climate Change Levy. For the six months from 1 October it moves it from 20% to zero, a 20 point difference, and still removes the levy.

A few practical points on certificates, because they are more particular than people expect. A separate certificate is needed for each supply where the usage differs. A certificate lapses if you move premises, so one filed at your last site does not follow you. You have to tell the supplier if the position changes materially, and HMRC's own example is a supply dropping from 60% to 59%, which flips the whole supply back to apportionment. And an incorrect certificate carries a penalty, so the percentage you declare needs to be one you can justify.

Backdating a corrected rate is often possible, but it is the supplier's commercial decision rather than an entitlement. That asymmetry is the argument for fixing a wrong rate now rather than at the next renewal.

The levy is not going anywhere

While you have the bill out, look at the other tax on it. The levy behaves differently from VAT, in a way that costs more than people assume.

The Climate Change Levy is 0.801p for every kWh, on electricity and on gas alike, since 1 April. Those two rates used to differ, with gas lower, and a lot of people in the trade still assume that. They were equalised in 2024. From 1 April 2027 both rise to 0.827p.

Two things follow. A VAT-registered business reclaims its VAT and cannot reclaim a penny of the CCL, so the levy is a real cost in a way that VAT on a standard supply is not. And VAT is charged on the levy-inclusive figure, so you pay the VAT on top of the levy as well.

Which is why a supply that moves onto qualifying use gains twice: the levy comes off, and the VAT rate drops.

What to do in the next four weeks

Short list, and none of it needs an adviser.

Get one recent bill for every meter point on every site, and not only the main supply. Sites routinely have more meters than the person paying the bills realises.

On each one, find two things: the VAT percentage and whether a Climate Change Levy line appears.

Flag any low-consumption supply showing 20% and a levy. That is the one to query, and it should have been at the reduced rate already.

If somebody lives on site and no qualifying-use certificate has ever gone to the supplier, get that moving now rather than in November.

If you would rather not do the reading, send us a recent bill from any site and we will check the VAT rate and the levy line on every meter point on it, whether or not we arranged the contract. If a rate is wrong we will tell you what it should be and take it up with the supplier. 02476 328995.

One caveat on timing. The government has announced the policy and the dates, and those are what this post relies on. HMRC has not yet published detailed guidance on how bills that straddle 1 October will be treated. If your billing period spans the date, expect the split to be confirmed nearer the time.