Changes to Business Energy VAT: Are you Eligible for 0%?
On 1st October 2026, a temporary Value Added Tax (VAT) reduction came into effect, dropping electricity tax from 5% down to 0% for eligible business accounts until 31st March 2027.
We’re passing these savings straight on to every qualifying Octopus customer, no fuss and regardless of which tariff you're on. Every little bit back in your business pot helps.
But what does this tax drop actually mean for your business? Let’s break it down in plain English.
Who qualifies for the 0% VAT rate?
The temporary tax drop applies straight to businesses that previously paid the reduced 5% rate. There are three main ways your organisation can qualify:
1. Low energy users (The De Minimis Rule)
Under HMRC rules, if your site uses an average of less than 33 kWh of electricity per day (roughly 1,000 kWh a month), your account automatically qualifies for the 0% rate.
2. Registered charities
If you run a registered charity, your VAT rate depends on how your site's energy is used:
Over 60% used for non-business charitable work: The 0% rate applies to your entire bill.
(Non-business activities include free core services like running a place of worship, community centre or hospice care).
Under 60% used for non-business charitable work (or commercial ventures): Your bill is split, 0% VAT applies to your charitable activities, while standard 20% VAT applies to trading operations (such as a paid charity shop, café or venue hire).
3. Mixed-use premises (Business & Residential)
If you use your energy for a mix of residential and business activities, such as a home business, live-work space, care home or charity your rate depends on your usage split:
Over 60% domestic use: The 0% rate applies to your entire bill.
Under 60% domestic use: The bill is split, with 0% applied to the domestic part and 20% to the business part.
If your business pays the standard 20% VAT rate, nothing changes. Your rate stays at 20%.
Do you need to do anything?
For most small businesses, the short answer is nope, we’ve got it covered.
The layout of your bill stays exactly the same. If your account qualifies, we’ve already applied the 0% VAT rate.
You’ll simply see the lower tax rate reflected on your next bill. We always prefer leaving you with as little admin as possible; after all, that's why we have 8 arms and 9 brains.
When would you need to drop us a line?
If you think your business qualifies for the 0% VAT rate based on the criteria above, but you're currently being charged standard VAT, here is what to do next:
If you’re an Octopus customer: Fill out our quick online VAT Declaration Form. It takes under two minutes and our team will review your account to make sure we apply the right rate.
If you’re with another supplier: You’ll need to submit a VAT Declaration Certificate to your current supplier so they can adjust your bill split.
We're big believers in keeping things simple and transparent. If you want a closer look at what makes up your charges, check out our guide to business energy prices.
Looking for more ways to trim your running costs?
We’re delighted to see small businesses getting a helping hand through the government’s VAT cut. But we know that for many site owners, a tax reduction is only one small piece of the puzzle.
That’s why we never stop building smart tools to help you cut your overheads even further.
Here are three effortless ways your business can trim its bills with Octopus:
Match with local green power: Through our Electric Match Club, we connect your business to nearby renewable energy generators. Using power when they are producing unlocks lower rates, adding monthly credits straight back to your account.
Shift your power off-peak: Our Shape Shifters tariff rewards you with cheaper electricity rates whenever you use power outside of peak afternoon hours (4–7pm). It’s a simple way to lower your unit rates without changing how your business operates.
Split £150 with another business: Know a fellow business owner looking for simpler energy? Send them your unique referral link. When they switch to Octopus, you’ll both get £75 in free account credit.
Updated on
Kaze Shibura
Content Writer & Creator
Published on 20th October 2026