Electricity VAT is due to be removed in October: what it means for Octopus customers

The Government has announced that VAT on domestic electricity will be removed from 1 October 2026. The stated policy is funded for the current financial year. It says suppliers should pass the reduction on to all eligible customers, including those on fixed tariffs.

For an Octopus customer, this is best treated as a bill adjustment rather than a reason to rush into a tariff change. Your electricity use, postcode, tariff and the next Ofgem price-cap period will still matter to what you actually pay.

What is changing?

Domestic electricity is normally charged at the reduced VAT rate of 5%. The announced change takes that rate to 0%. The Government estimates that it will reduce the annual Ofgem price-cap benchmark by around £45, although that is not a fixed saving for every household.

You should not need to apply or enter a code. The Government expects suppliers to make the adjustment automatically. Octopus has not published a separate customer announcement about this measure at the time this article was written, so this guide relies on the Government's stated policy rather than suggesting an Octopus-only offer.

Who should benefit?

The announcement covers domestic electricity customers in England, Scotland and Wales. It says the cut should also apply to fixed tariffs. Small businesses with domestic-energy VAT relief that are not VAT-registered, eligible charities and residential care homes are also included in the Government's announcement.

Northern Ireland is handled differently because of its VAT arrangements. The Government says it will provide the Northern Ireland Executive with comparable funding for household support rather than apply the same immediate VAT-rate change.

Why the saving will differ between homes

The tax cut applies to electricity, not gas. That means an all-electric home, or one that uses more electricity for an EV, heat pump, electric heating or cooking, may see a larger cash reduction than a low-electricity-use dual-fuel household. It is still a percentage reduction on the electricity part of the bill, not a flat £45 credit.

It is also important not to confuse the VAT change with the next price-cap change. The Ofgem cap is updated on 1 October too, and wholesale costs, regional rates, standing charges and your household use can all move. A VAT reduction can be real without making every October bill visibly lower than the previous one.

What this does not change

• It does not remove VAT from domestic gas bills.
• It does not change whether a fixed, flexible or smart tariff suits your household.
• It does not turn the Ofgem price cap into a cap on your total bill.
• It does not replace checking a live quote, the tariff terms and your own annual kWh use.

For people on a smart tariff, the usual setup checks still apply. A cheap EV window, solar export arrangement or dynamic tariff can matter more to the total bill than this VAT change alone. Compare the whole home rather than selecting a tariff from one headline.

What Octopus customers should check in October

• Check the electricity unit rate and standing charge shown in your account or new tariff terms.
• Compare the new rate with your previous one, while remembering that the cap period may have changed too.
• For a fixed tariff, check that the bill or account information reflects the VAT reduction without assuming other terms have changed.
• Use actual meter readings and the bill period when checking the first bill that spans October.
• Use a postcode-specific quote before switching tariffs or supplier.

The bottom line

Removing VAT from domestic electricity is a useful reduction, particularly for electricity-heavy households. It should not be presented as a universal £45 payment or as proof that one tariff is automatically better than another.

The sensible next step is to wait for your October account information, compare the actual electricity rates and use your own usage to decide whether your current Octopus tariff still fits. If you decide to switch after those checks, the referral page explains how the Octopus referral journey works.