Domestic fuel and power: the reduced rate

Gas, electricity, heating oil, solid fuel and heat supplied for a qualifying use, meaning domestic use or a charity’s non business use, are charged at the 5% reduced rate. Small quantities below the de minimis limits are treated as domestic even when a business buys them. From 1 October 2026 to 31 March 2027 qualifying electricity in Great Britain is temporarily zero rated, while gas and other fuels stay at 5%.

What is the legal basis for the reduced rate?

Fuel and power are standard rated unless they qualify under Group 1 of Schedule 7A to the VAT Act 1994, which covers supplies for qualifying use. HMRC’s guidance is VAT Notice 701/19. For VAT purposes a supply of heat, power, refrigeration or ventilation is a supply of goods (Schedule 4, paragraph 3), so the goods rules on time and place of supply apply. The reduced rate is available in four situations:

• fuel and power for domestic use
• fuel and power for a charity’s non business use
• quantities within the de minimis limits, whoever the customer is
• mixed supplies where 60% or more is for qualifying use

How the rates fit together across the system is covered in VAT rates explained.

What counts as domestic use?

The supplier must be satisfied the supply is to a dwelling or one of the residential types HMRC lists: houses and flats, caravans and houseboats, children’s homes, care homes, hospices, student accommodation, armed forces accommodation, monasteries and similar communities, self catering holiday accommodation and institutions that are the sole or main residence of at least 90% of their residents. Garages used with a house and corridors, lifts and stairways within a residential unit count as part of it. Hospitals, prisons, hotels and inns do not.

Fuel metered directly to tenants of flats for their own demised areas is reduced rated. Power used by a landlord in common parts is the landlord’s cost and is recovered through the service charge, which forms part of an exempt supply of accommodation, so the landlord cannot recover that VAT.

Charity non business use generally means activities for which the charity makes no charge. A charity with business and non business activities in the same premises may need to split its supply under the mixed use rules; see VAT reliefs for charities.

How does the temporary zero rate on electricity work?

The government announced on 21 July 2026 a temporary zero rate for qualifying supplies of electricity in Great Britain from 1 October 2026 to 31 March 2027. The order inserts a new Group 24 into Schedule 8, “Domestic Electricity: England and Wales and Scotland”, using the same description of qualifying supplies as Schedule 7A. Key points:

• only electricity is affected; gas, heating oil, solid fuel and other fuels remain at 5%
• Northern Ireland electricity stays at the reduced rate of 5%
• there is no change to which supplies qualify, so domestic use, charity non business use and de minimis supplies are all covered
• supplies of electricity in Great Britain that would have been reduced rated are charged at 0% during the period

Where a billing period straddles 1 October 2026, suppliers may decide the rate by when the energy was consumed. HMRC recommends meter readings for the split, although other fair and reasonable methods are allowed. The same issue will arise when the rate returns to 5% after 31 March 2027. Customers do not need to do anything; the change is applied on their bills. For how tax points work more generally, see VAT time of supply.

How do the de minimis limits help businesses?

Supplies within these limits are always treated as domestic, even to a business customer, and no certificate is needed:

Fuel	De minimis limit
Electricity	Average of no more than 33 kWh a day, or 1,000 kWh a month, per customer per premises
Piped gas	Average of no more than 145 kWh (5 therms) a day, or 4,397 kWh (150 therms) a month, per customer per premises
Fuel oil, gas oil or kerosene	No more than 2,300 litres in a single supply
LPG in cylinders	Cylinders under 50kg net not for resale, or no more than 20 cylinders
LPG not in cylinders	Premises unable to store more than 2 tonnes safely
Domestic grade coal or coke	One tonne or less supplied at any one time
Wood, peat or charcoal held out solely as fuel	Any quantity, if not for resale

The electricity and gas limits are averages and apply whether the bill is based on an actual or estimated reading. For oil, HMRC normally treats all deliveries to one site on one day as one supply, even with separate invoices, so two tanks filled on the same visit are added together. Steam and heated water have no de minimis limit. Electricity for charging vehicles at public charge points is always standard rated, regardless of quantity.

What if premises are partly business and partly domestic?

If 60% or more of the fuel or power is for qualifying use, the whole supply is reduced rated. Below 60%, the supplier charges the reduced rate on the qualifying portion and the standard rate on the rest. To apply either rule the customer gives the supplier a certificate for each premises, showing:

• the supplier’s name and address and the customer’s name, address and VAT number
• the address of the premises
• the exact percentage of qualifying use
• a signed and dated declaration by a responsible officer, confirming they have read the guidance and will tell the supplier if the use changes

Suppliers must make reasonable checks, and customers should keep the calculations behind the percentage. Anyone giving an incorrect certificate may be liable to a penalty, and a supplier that cannot show reasonable steps may have to pay VAT it undercharged.

What is included in, and excluded from, the reduced rate?

Standing charges are part of the supply of gas or electricity, so the whole bill takes the same rate. Some supplier charges up to the meter, such as disconnection and reconnection at the supplier’s instigation and meter rental, follow the rate of the fuel. The same work invoiced by a contractor other than the supplier is standard rated, and a standing charge made by a third party, not the fuel supplier, is standard rated too.

Always standard rated: wholesale supplies, road fuel, matches, hire of generators for the customer to run, servicing contracts, repairs to pipes on the customer’s side of the meter, and battery charging. Installing a boiler is a construction supply, not fuel. Business customers that pay standard rate VAT on fuel recover it as input tax in the usual way; private use is covered in VAT on mixed business and private use, and road fuel in VAT on cars, vans and fuel.

How does this work in practice?

Illustration only. A small café in England uses an average of 25 kWh of electricity a day, within the 33 kWh limit. Its electricity is treated as domestic: 5% before 1 October 2026 and 0% from then until 31 March 2027. Its gas averages 200 kWh a day, above the 145 kWh limit, so the whole gas bill is standard rated at 20%.

Illustration only. A charity’s monthly gas bill is £1,000 before VAT. If 70% of use is non business, the whole bill is reduced rated, giving VAT of £50. If only 50% is non business, £500 is charged at 5% (£25) and £500 at 20% (£100).

What mistakes come up most often?

• Testing the de minimis against a single invoice rather than the average daily or monthly rate.
• Splitting same day oil deliveries to one site into separate invoices to stay under 2,300 litres.
• Assuming the temporary zero rate covers gas, heating oil or Northern Ireland electricity.
• Out of date mixed use certificates after a change in how premises are used.
• Landlords recharging common parts electricity as if it were a separate reduced rated supply.
• Applying the reduced rate to public electric vehicle charging.

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Related Accountapedia entries

• The Climate Change Levy
• VAT on electric vehicle charging
• Energy saving materials: the VAT zero rate
• VAT on service charges
• Charitable and residential purpose buildings: zero rating
• Red diesel: who can still use it

Sources

• GOV.UK: Vat on fuel and power notice 70119
• GOV.UK: Temporary zero rate of vat in great britain for domestic electricity
• GOV.UK: Temporary zero rate of vat for domestic electricity in great britain
• GOV.UK: Vat rates

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.