CFG's Head of Policy, Richard Sagar, looks at the announcement from new Prime Minister, Andy Burnham, regarding the VAT cut for electricity bills and, though some details are still to be ironed out, he provides an overview of what's been said, and what charities need to be aware of.
With news that Andy Burnham has stated that his government ‘needs to be a cost of living government’, the first substantive policy measure to address the this has been announced and it is of direct relevance to the charity sector. The morning after entering Downing Street, he announced a VAT cut on qualifying electricity bills. The VAT rate will be cut from 5% to 0% on qualifying electricity bills commencing from 1 October 2026.
The announcement confirms that it is a charity sector benefit with the announcement explicitly stating: “Small businesses who qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate will also benefit.”
From the information we have thus far, qualifying charitable non-business electricity use (currently attracting 5% VAT) is expected to become zero-rated from 1 October, subject to forthcoming HMRC guidance. Without further details it is unclear precisely how much financial benefit this will provide to charities, as it will greatly depend on an individual charity's electricity usage but, nonetheless, any reduction in costs is to be welcomed.
At the time of writing we still await a HMRC technical note or guidance setting out further details on how the relief will work in practice. A number of pertinent questions for charities include: how the 0% rate will interact with charities business/non-business use, the duration of the relief beyond the current financial year, or if any further action is required from charities to receive it, amongst others. We have raised these questions directly with HMRC and once we receive clarifications we will be able to provide a full update so that CFG’s members can benefit from this relief.