October electricity VAT cut: what it means for Octopus customers

The Value Added Tax (Supplies of Domestic Electricity) Order 2026 was made on 7 September and comes into force on 1 October. It zero-rates qualifying electricity supplied in England, Wales and Scotland until 31 March 2027. Government guidance says suppliers should pass the reduction on automatically, including 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 new Order takes qualifying supplies in England, Wales and Scotland to 0% for the six-month period. 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.

Ofgem has now built the VAT change into its confirmed October to December price cap. The cap still rises overall, so the £45 estimate is not an extra credit on top of the October rates. Current Government and Ofgem guidance covers electricity supplied from 1 October 2026 to 31 March 2027.

You should not need to apply or enter a code. Octopus has now addressed the measure directly: Greg Jackson says it will pass the VAT saving into customer rates from 1 October, including on fixed tariffs. Octopus's October price-cap guide also says the cut has softened the wider increase rather than prevented it. This is still a Government tax change, not an Octopus-only offer.

Who should benefit?

The Order covers qualifying electricity supplied in England, Scotland and Wales. It includes domestic use and qualifying charity use, with detailed rules for mixed-use supplies and residential settings. Government guidance says the cut should also flow through to fixed tariffs and to eligible small businesses, charities and residential care homes that already qualify for the reduced electricity VAT rate.

Northern Ireland is handled differently. The Order leaves qualifying Northern Ireland electricity within the existing reduced-rate rules rather than applying the GB zero rate. The Government has said it will provide the Northern Ireland Executive with comparable funding for household support.

Prepayment customers should not need to claim it either. Government guidance says VAT will no longer be added when electricity credit is loaded from 1 October. Keep the top-up receipt or app record if you need to query how a payment spanning the change was handled.

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

If you are on Flexible Octopus, you can now use Octopus's October regional rate breakdown to check the supplier's published prices before the change. Choose your region and the correct payment-method table: Direct Debit or other methods such as Standard Credit. These are Flexible rates, not the prices for a fixed or smart tariff. Compare them with your own account notice rather than treating Ofgem's national average as your personal rate.

• 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 compare the October prices for your actual tariff and payment method, then use your own usage to decide whether your current Octopus tariff still fits. If your fixed or smart-tariff account notice is not available yet, check with Octopus rather than substituting the Flexible table. If you decide to switch after those checks, the referral page explains how to use our referral link.