VAT Removal on Domestic Electricity Bills: What Housing Associations Need to Know

The Government has announced plans to remove VAT from domestic electricity bills from 1 October 2026, reducing the rate from 5% to 0% as part of a package of cost-of-living measures.

The change is expected to save the average household around £45 per household, with suppliers expected to pass the reduction directly to eligible customers.

However, whilst the announcement is good news for domestic consumers, the position is less straightforward for housing associations, charities and other organisations purchasing electricity under commercial contracts.

What Has Been Announced?

Under the Government’s proposal, VAT will be removed from eligible domestic electricity supplies from October 2026.

The measure applies to domestic customers, including those on fixed tariffs, with suppliers expected to apply the reduced rate automatically. Small organisations already receiving domestic VAT treatment or qualifying for existing domestic energy VAT relief arrangements are also expected to benefit.

The Government has presented the measure as immediate support for households ahead of the winter period, with additional funding and longer-term measures expected to be considered through future Budget announcements.

Will Housing Associations Benefit?

At present, the answer appears to be: only in certain circumstances.

The Government has confirmed that charities and residential care homes already benefiting from reduced-rate arrangements should continue to do so. However, discussions with suppliers suggest that electricity supplied under standard commercial contracts is unlikely to fall within the scope of the new VAT removal.

For many housing associations, this distinction is significant.

Whilst residents purchasing electricity directly through domestic contracts should benefit from the reduction, electricity purchased by landlords under commercial arrangements is not currently expected to qualify.

This may include:

  • Landlord electricity supplies
  • Communal area meters
  • Plant room supplies
  • Operational building supplies
  • Office and ancillary building meters
  • Other supplies contracted under standard commercial arrangements

Suppliers have not yet indicated that the VAT removal will extend to these supplies.

Why Does This Matter?

There is a risk that the announcement creates an expectation that electricity costs will fall across an entire housing portfolio.

In reality, the position is likely to be more nuanced.

Where residents hold their own domestic electricity accounts, they should see the benefit of the VAT reduction.

Where electricity is purchased centrally by the landlord through commercial contracts, costs may remain unchanged unless further guidance broadens eligibility.

For organisations responsible for communal services and shared facilities, the financial impact of the announcement may therefore be considerably less than initial headlines suggest.

What Should Housing Associations Do Now?

Until further guidance is published, housing associations should avoid assuming that savings will apply across all electricity supplies.

In particular, providers may wish to:

  • Review which supplies are billed under domestic and commercial arrangements
  • Identify communal and landlord meters that may fall outside the scope of the change
  • Avoid building anticipated savings into budgets or service charge forecasts
  • Monitor guidance from suppliers and HMRC over the coming weeks

Further Clarification Expected

As with any significant VAT change, a number of practical questions remain.

EIC is seeking further clarification in relation to:

  • Mixed-use sites
  • Communal residential supplies
  • Residential care settings
  • Charitable premises receiving reduced-rate VAT
  • Housing association landlord meters serving domestic residents

Until additional guidance is issued, organisations should assume that existing VAT arrangements remain unchanged.

Need Help?

If you’d like to understand how the change could affect your portfolio, speak to your Executive Relationship Manager or drop us a line using the form below. We will provide the latest guidance as further details emerge.

With a century of combined experience in carbon and energy strategy, EIC Partnership is here to help you manage today and plan for tomorrow.

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