The October electricity VAT change: check the bill and the budget

A current change with a precise boundary

HMRC updated Fuel and power, VAT Notice 701/19, on 8 September 2026. It confirms a temporary 0% rate for qualifying electricity supplied in Great Britain from 1 October 2026 to 31 March 2027. Northern Ireland qualifying electricity remains at 5%. Eligibility has not been widened. DESNZ’s 26 August explanation expressly includes residential care homes already qualifying for the reduced rate. Gas is not covered by this electricity change.

That creates a concrete autumn finance question: has the supplier applied the relevant treatment to the relevant supply? It does not establish that every care organisation, office, day service or separately metered commercial space qualifies. Start with the premises, the use and the supplier’s recorded declaration. Where the answer is uncertain, resolve it with the supplier and an appropriately qualified tax adviser rather than copying a neighbouring provider’s classification.

The first invoice is the useful evidence

Create a meter-level check with the account number, supply address, invoice period, stated VAT rate and the person responsible for following up. Ask how a billing period crossing 1 October has been handled. Keep the explanation with the invoice so a later colleague can reconstruct the decision. A verbal assurance is harder to use when accounts teams change or an invoice is corrected months afterwards.

If the treatment appears inconsistent with the confirmed eligibility, ask the supplier for a written explanation and the correction route. Avoid booking a refund before entitlement and the amount have been established. A portfolio needs a repeatable process: one home’s corrected invoice does not prove that every meter has been checked. Completion means the relevant accounts have a documented outcome, including cases where no correction is required.

Do not confuse tax relief with procurement performance

An illustrative £10,000 of eligible pre-VAT electricity charges attracts £500 VAT at 5% and none at 0%, with all other factors held constant. That is a £500 difference, or approximately 4.76% of the previous £10,500 gross amount. It is not a measured care-sector saving. Recoverable VAT and a provider’s wider tax position can change the net effect.

Keep the invoice review separate from evaluation of an energy adviser, efficiency project or new contract. A lower gross bill could reflect tax, lower consumption, a credit or a different billing period. Compare equivalent periods and label every adjustment. DESNZ’s non-domestic price dataset, updated 29 September, provides consumption-band context; it is not a quote for a particular home. This feature makes no claim about an average care-home tariff or market-wide increase.

A contract review should reveal its full cost

Ofgem’s April 2024 announcement established that principal terms should show broker fees for non-domestic contracts signed from 1 October 2024, with information available on request. This is an existing protection worth using now. Request the relevant terms and identify what the provider is paying for advice, alongside the energy supply itself.

Care Circle recommends comparing quotations against the same consumption assumptions, contract dates and service requirements. Record unit rates, standing charges, any separately identified fees and which charges can change. Ask who handles billing disputes and meter problems. A headline rate alone is too narrow a basis for a decision about a service that operates continuously. Do not infer that VAT qualification provides protection under the domestic price cap or a guarantee against contract increases.

Plan for the end of the temporary measure

Budget the relief only within the confirmed period. Keep a separate sensitivity showing the return of VAT after 31 March 2027 if the temporary measure is not extended. That prevents a useful short-term reduction from being turned into a permanent assumption in fee negotiations or an investment appraisal.

The positive outcome is clarity rather than an extravagant savings promise. A manager should be able to tell directors which accounts were checked, which queries remain open and how the next financial-year budget treats the change. Efficiency work can then be judged on its own evidence, with resident comfort, laundry, catering and water-safety requirements protected. Reducing waste is worthwhile; reducing necessary care inputs to meet a target is a different decision.

Where a supplier issues a credit, match it to the original invoice and record whether the money has been received or only offset against a future bill. These are different cash effects. Ask the finance lead to explain the treatment in the forecast and retain the supplier correspondence. A correction should resolve the billing question without hiding a separate query about estimated readings, consumption or contract charges.