What is changing?

From 1 October 2026, VAT on qualifying electricity supplies will fall from 5% to 0%. While the government announcement focused on household bills, the change is also relevant for charities that already qualify for the reduced VAT rate relief on fuel and power. As charities face sustained pressure from rising energy bills, this is a welcome saving — but when does the relief apply and can your charity benefit?

At present, electricity supplied for domestic use, certain residential settings and charity non-business use can qualify for the relief of 5% reduced rate VAT rather than the 20% standard rate. The Government announcement indicates that the new zero rate will follow the same framework. This means charities already benefiting from the reduced rate should see VAT on qualifying electricity bills fall to nil from October, assuming suppliers pass on the tax saving to customers.

The eligibility criteria will remain unchanged. However, the zero rate will apply only to electricity. Gas and other fuels will continue to be charged at the reduced rate of 5%.

Who qualifies for the relief?

Eligibility is not automatic just because an organisation is a registered charity; the key question is how the electricity is used, with only ‘qualifying use’ able to obtain relief.  This includes:

• Domestic use
• Charity non-business use
• Relevant residential use

Non-business use refers to the VAT status of the activities being carried out, and so will generally apply where a charity undertakes an activity without making a charge, such as those which are wholly grant or donation funded.. Where there are any business (exempt or taxable) activities, these may not qualify, or may only qualify in part where there is a mix of use.

Understanding the 60% rule

Where there is mixed use then there is a 60% rule which is particularly important. In simple terms, it is an “all or split” test for VAT relief on energy where:

• If 60% or more of the electricity supplied to a site is used for qualifying purposes then the whole electricity bill can qualify for the relief.
• If less than 60% is used for qualifying purposes, then the charity can request that the bill be split: the qualifying part gets the relief, and the rest is charged at the standard rate of VAT.

Relevant residential use

Mixed use premises may still qualify because they are used for relevant residential purposes as well as charitable non-business, such as hospices, care homes, student accommodation or similar settings.

What about small supplies?

Separately, small quantities of electricity can be treated as qualifying under the de minimis rules. For electricity, this includes supplies averaging no more than 33 kilowatt hours per day or 1,000 kilowatt hours per month.

Landlords, tenants and recharges

Depending on whether your charity is a landlord or tenant, it may also be worth reviewing how electricity costs are charged. Where utility costs are included within an exempt rental charge and there is no separate metering, the VAT treatment will generally follow that of the rent, so no further relief is required.

However, where a landlord recharges electricity based on actual consumption through a sub-meter, this is usually treated as a separate supply of electricity. In these circumstances, it is worth checking whether the fuel and power VAT relief rules apply.

Don’t assume your supplier will get it right

The practical message is not to leave this to the energy supplier as they will not know how you as a charity uses its buildings for which activities. HMRC require that they obtain a VAT declaration or certificate from the customer before applying the reduced rate. If your charity hasn’t reviewed its declaration for a while or you’re not sure if you have one in place, now is a good time to check to make sure it is still accurate and covers the right premises, meters and activities.

Preparing for the change

• Check whether your electricity use qualifies for VAT relief.
• Review any existing VAT declarations with your supplier.
• Assess mixed-use premises and the 60% rule.
• Review landlord and tenant recharge arrangements.
• Make sure all eligible supplies are covered before 1 October 2026.

The VAT cut could deliver a valuable saving for charities, but only where the electricity supply already falls within the reduced-rate fuel and power rules. Reviewing your position now could help ensure the correct rate is applied from 1 October 2026 and prevent your charity from missing out on relief to which it is entitled.

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