Category: VAT

A five per cent rate falls to nil — from 1 October 2026 until 31 March 2027, VAT on qualifying supplies of domestic electricity in Great Britain drops from the 5% reduced rate to 0%, worth around £45 a year to a typical household and £850 million to the Exchequer in 2026-27. As chartered certified accountants in Surrey advising households, charities, care providers and owner-managed businesses across the UK, TaxDigit explains who actually qualifies — because this is not a households-only measure — and where the two dates create traps on either side of the relief.

What the Reduced Rate Covers — and Why It Matters

VAT on fuel and power is not a single rate. Most commercial supplies carry 20%, but Group 1 of Schedule 7A to the Value Added Tax Act 1994 charges 5% where the supply is for qualifying use. Qualifying use means two things: domestic use, and use by a charity for its non-business activities.

Domestic use is far wider than “a house”. It takes in flats and dwellings, caravans and houseboats, children’s homes and homes providing care for the elderly or disabled, student halls of residence, armed forces accommodation and self-catering holiday accommodation. Hotels, prisons and hospitals are excluded. There is also a de minimis rule: a supply of electricity averaging no more than 33 kilowatt hours a day — 1,000 kWh a month — to one customer at one set of premises is treated as domestic whatever it is actually used for. That sweeps in a large number of small shops, salons, workshops, consulting rooms and village halls. Where premises are mixed, the 60% rule applies: if at least 60% of the supply is qualifying use, the whole supply takes the lower rate; below that, it is apportioned.

What Changes From 1 October 2026

The cut was announced on 21 July 2026 and is timed to land before the next Ofgem price cap, so the saving shows in the cap rather than being absorbed on the way through.

• The 5% reduced rate on qualifying supplies of electricity becomes 0% for supplies made on or after 1 October 2026.
• The relief runs to 31 March 2027 and reverts to 5% from 1 April 2027 unless it is extended at the Autumn Budget.
• It is electricity only. Gas, heating oil, LPG, coal and supplies of heat, steam, ventilation and air conditioning remain at 5% where they qualify.
• It applies in Great Britain only. Under the Windsor Framework, Northern Ireland remains subject to EU VAT rules and cannot take on a new zero rate; the Northern Ireland Executive receives comparable funding to provide equivalent support instead.
• The cost is put at £850 million in 2026-27, funded by cancelling the £1.8 billion Digital ID programme, and is expected to take around 0.10 percentage points off CPI.

Crucially, the announcement does not change who qualifies. It changes only the rate charged on supplies that already qualify for the reduced rate today. Draft legislation had not been published when this article went out; the measure is expected to be delivered by Treasury order amending the VAT Act rather than in a Finance Bill.

The Catch — Two Dates, and a Rate Change in Each Direction

VAT on a continuous supply of power falls due at the rate in force at the tax point, which for most energy accounts is the earlier of the invoice date and the date payment is received. That is not the same as the date the electricity was used. Where a rate changes, section 88 of the VAT Act allows a supplier to account instead by reference to when the supply was actually made, and suppliers will normally apportion a billing period straddling 1 October 2026 so that only the part supplied on or after that date is zero-rated. Customers should check the apportionment rather than assume it.

Three points deserve attention. First, a fixed tariff is no protection and no exclusion: the VAT rate is a matter of law, not of contract, so a fixed-price deal should still show 0% from 1 October. Second, advance payments and direct debits taken before 1 October for electricity supplied afterwards create a tax point at 5%, which the supplier should correct. Third, a credit note or rebilling issued after 1 October but relating to electricity supplied before it must carry VAT at 5%, not 0% — a credit follows the rate on the original supply. Every one of these reverses on 1 April 2027, when the rate goes back up.

Who Benefits — and Who Should Still Pay Attention

The saving is only real where the VAT is irrecoverable. A VAT-registered trading business that recovers its input tax in full is neutral: cash flow improves slightly, but cost does not move.

The gainers are those who cannot reclaim. Households. Charities, on their non-business activities. Care homes, hospices and supported housing, whose income is largely VAT exempt so their input tax sticks. Academies, housing associations and NHS staff accommodation. And small unregistered businesses whose electricity sits under the de minimis limit and is therefore charged at the domestic rate. Partly exempt businesses gain to the extent of their restriction.

The group that should pay closest attention is anyone with qualifying premises who has never given their supplier a certificate of qualifying use. Without that certificate the supplier charges 20%, and the zero rate never reaches the bill at all. If the mix of use at a site has drifted above or below the 60% line since the certificate was signed, that needs revisiting too — in either direction.

What Businesses, Charities and Households Should Do Now

• Check the October bill actually shows 0% on qualifying electricity, including on a fixed tariff, and query it with the supplier if it does not.
• Confirm the supplier holds a current certificate of qualifying use for every qualifying site — residential accommodation, care home, charity non-business use or de minimis — and refresh it where the use has changed.
• Look at the invoice covering 1 October 2026 and check the period has been apportioned rather than charged at 5% throughout. Do exactly the same with the invoice covering 1 April 2027.
• Review advance payments, direct debit schedules and any prepayment for electricity to be supplied after 1 October, and make sure the correction comes through.
• Diarise 31 March 2027 and budget on the basis that 5% returns the next day. Treat any extension announced at the Autumn Budget as a bonus, not a plan.

Frequently Asked Questions

Does the 0% rate cover gas as well as electricity?

No. The measure is confined to electricity. Gas, heating oil, LPG, coal and supplies of heat or steam remain at the 5% reduced rate where they are for qualifying use.

Does it apply in Northern Ireland?

No. Northern Ireland remains subject to EU VAT rules under the Windsor Framework and cannot introduce a new zero rate, so domestic electricity there stays at 5%. The Northern Ireland Executive is receiving comparable funding to deliver equivalent cost-of-living support by another route.

My business is not VAT registered and uses very little electricity. Do I benefit?

Very probably. If your electricity at a set of premises averages no more than 33 kWh a day, or 1,000 kWh a month, it is charged at the domestic rate regardless of what it is used for, and that rate becomes 0% from 1 October 2026.

What rate goes on a credit note issued after 1 October for a bill charged at 5%?

5%. A credit note takes the rate of the supply it corrects, not the rate in force when it is issued. The same principle applies in reverse to credits issued after 1 April 2027 for zero-rated supplies made before it.

How TaxDigit Can Help

TaxDigit advises on VAT across the full range of partial exemption, qualifying use and rate-change issues, alongside tax advisory and planning and day-to-day bookkeeping for charities, care providers and owner-managed businesses. We can test whether your premises qualify, draft or refresh the certificate of qualifying use, review the straddling invoices on both sides of the relief and recover VAT charged at the wrong rate. We took the same approach to the recent locum doctor VAT exemption refund window. The underlying reduced-rate provision is at Schedule 7A to the Value Added Tax Act 1994 on legislation.gov.uk.

Plan Ahead With TaxDigit

Six months of relief is easy to miss and easy to get wrong at both ends. If you run qualifying premises — or you are not sure whether you do — it is worth checking before the October bill lands rather than afterwards. Call 01483 230 777, email info@taxdigit.co.uk or book a consultation with our team in Guildford, Surrey.

Locum doctors are not just another staffing supply — on 17 July 2026 HMRC published Revenue and Customs Brief 6 (2026), replacing Brief 9 (2025) and confirming that supplies of GMC-registered locum doctors can fall within the VAT exemption at Item 5, Group 7, Schedule 9 of the VAT Act 1994, including where the doctor is supplied through an employment business. As chartered certified accountants in Surrey advising medical staffing businesses, GP practices and private clinics across the UK, TaxDigit explains what HMRC has conceded, where it has drawn the line, and how the four-year refund window works.

What the Locum Doctor Exemption Is — and Why It Matters

Item 5 of Group 7, Schedule 9 exempts “the provision of a deputy for a person registered in the register of medical practitioners”. For years HMRC read that wording extremely narrowly, treating it as covering little more than out-of-hours GP deputising services. Since the staff hire concession was withdrawn in 2009, agencies and employment businesses have generally charged 20% VAT on locum doctors as a supply of staff.

That is an expensive default. NHS trusts, GP practices and most private healthcare providers make exempt supplies, so VAT charged on locum cover is largely irrecoverable — a genuine 20% cost on one of the largest lines in a clinical budget. In Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC), the First-tier Tribunal held that HMRC’s interpretation was too narrow and that locums supplied by agencies can also come within Item 5. HMRC did not appeal.

What Changes From 17 July 2026

• Brief 6 (2026) replaces Brief 9 (2025) and sets out HMRC’s settled position following the tribunal decision.
• Exemption can apply where the individual is registered in the GMC register of medical practitioners and is performing medical services in that professional capacity.
• It applies whether the doctor is engaged directly or supplied through an employment business or staffing agency.
• It is no longer limited to out-of-hours GP cover — the narrow deputising reading has gone.
• Suppliers who accounted for output tax on qualifying supplies may claim a refund on form VAT652, restricted to the last four years.

Claims should be marked “Locum doctors claim RCB 6/26” and sent to the dedicated HMRC mailbox, with calculations broken down by VAT return period.

The Catch — Who Is Still Outside the Exemption

HMRC has kept the scope deliberately tight, and this is where most of the risk sits. The Brief states that other health professionals registered with the GMC — including allied health professionals, anaesthesia associates and physician associates — are not within this exemption, and neither are general staffing services where what is really being supplied is a body rather than medical care.

Equally important: VAT exemption is not optional. A supplier that becomes partly exempt loses input tax recovery on related costs, and HMRC can charge interest of up to 8% on input tax already reclaimed. A refund claim that looks attractive on the output tax line can be materially smaller once the input tax clawback and partial exemption method are worked through.

Who Benefits — and Who Should Still Pay Attention

The clearest winners are NHS bodies, GP practices and private clinics that have been absorbing irrecoverable VAT on locum cover. Staffing suppliers benefit too, but only where they can show the refund belongs to them: HMRC will not repay output tax where doing so would unjustly enrich the supplier, which usually means proving the VAT was a cost the supplier bore rather than one passed on in the price.

Practices using non-doctor temporary staff should not assume the same treatment applies, and anyone mid-way through an HMRC enquiry or appeal should expect claims to be held until that concludes.

What Suppliers and Clinics Should Do Now

• Review the last four years of locum doctor invoices and identify which supplies involved a GMC-registered doctor delivering medical services.
• Read the contracts: whether a clinic can recover wrongly charged VAT from its supplier usually turns on the VAT clause and whether the price was VAT-inclusive.
• Model the partial exemption consequences and input tax clawback before submitting anything — a gross claim is not a net benefit.
• Prepare the unjust enrichment evidence: pricing methodology, correspondence and how customers treated the VAT.
• Fix the treatment going forward, so you are not still standard-rating supplies that should now be exempt.

Frequently Asked Questions

Are all locum doctors now VAT exempt?

No. The exemption applies where the individual is GMC-registered and is performing medical services in that professional capacity. A doctor supplied to cover an administrative or managerial role is not automatically covered.

Can a clinic claim the VAT back from HMRC directly?

Not usually. The output tax was accounted for by the supplier, so the claim is the supplier’s. A clinic normally has to ask its supplier to make the claim and pass the benefit on, subject to the contract.

How far back can a claim go?

Four years. The usual VAT capping rules apply, so each month of delay closes another period permanently.

Does this cover physician associates?

No. HMRC has expressly excluded physician associates, anaesthesia associates and allied health professionals, even though they are GMC-registered.

How TaxDigit Can Help

TaxDigit advises on VAT liability, partial exemption and error correction, alongside tax advisory and planning and day-to-day bookkeeping for healthcare businesses. We can review four years of locum supplies, quantify the net claim after input tax clawback, prepare the VAT652 and build the unjust enrichment file. If you also hold significant capital assets, our note on the 2026 Capital Goods Scheme reform is worth reading alongside this. The Brief itself is on gov.uk.

Plan Ahead With TaxDigit

If you supply or engage locum doctors, the four-year window is already closing at one period a month. Call 01483 230 777, email info@taxdigit.co.uk or book a consultation with our team in Guildford, Surrey.

The Capital Goods Scheme — the VAT rule that follows an expensive asset around for years after the invoice is paid — is about to get a great deal smaller. From 29 July 2026, computers and computer equipment leave the scheme altogether, and the threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 excluding VAT. As chartered certified accountants in Surrey advising VAT-registered businesses across the UK, here is what the reform changes, what it leaves untouched, and what you should do about it now.

What Is the Capital Goods Scheme — and Why It Matters

The Capital Goods Scheme (CGS) is a VAT adjustment mechanism for expensive, long-life assets. Rather than fixing your VAT recovery in the quarter you buy the asset, the CGS makes you revisit it across an adjustment period — five intervals for computer equipment and ten for land and buildings — and adjust the VAT you originally claimed if the way you use the asset changes. It bites hardest on partly exempt businesses, property investors and anyone whose taxable-to-exempt use shifts over time. Our earlier guide to the Capital Goods Scheme explains the mechanics in more detail.

What Changes From 29 July 2026

Two changes take effect, given legal force by the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765):

• Computers and computer equipment leave the scheme. Capital expenditure on computers and items of computer equipment will no longer be a capital item at all. No five-interval adjustment, no CGS register entry, no annual recalculation.
• The property threshold rises to £600,000. The CGS will only apply to land, buildings and civil engineering works where the capital expenditure is £600,000 or more, exclusive of VAT — up from the long-standing £250,000 limit.

The government’s stated aim is simplification: to reduce the administrative burden on smaller businesses that have been carrying complex, time-consuming CGS calculations for assets that, in cash terms, were never especially significant. In practice, far fewer assets will now need the five or ten-year VAT-recovery adjustment.

The Transitional Rule — Existing Capital Items Keep Running

This is the point most commonly misunderstood, and the one that causes errors. The new rules apply only to expenditure incurred on or after 29 July 2026. Anything already inside the scheme stays inside the scheme and runs its full adjustment period to the end.

So a server bought in 2024 remains a capital item until its five intervals are exhausted, even though computers are no longer in the scheme. A £300,000 office refurbishment completed in 2025 remains a capital item for its full ten intervals, even though it now sits well below the new £600,000 threshold. You do not get to switch off an existing CGS item simply because a new asset of the same kind would fall outside the rules.

Who Benefits — and Who Should Still Pay Attention

The clearest winners are businesses with material IT spend and no property in the scheme: their CGS obligations may disappear entirely for new expenditure. Owner-managed companies and smaller partly exempt businesses that were tripped into the scheme by mid-sized property works will also see meaningful relief, as the £250,000-to-£600,000 band drops out for new spend.

Attention is still needed where a business is partly exempt, where a property project sits close to the £600,000 line, or where an option to tax changes the VAT profile of a building mid-adjustment. And every business with existing capital items must keep its CGS register alive until those items run out.

What VAT-Registered Businesses Should Do Now

• Review the timing of planned expenditure. For property works and large IT purchases scheduled around July 2026, the date the expenditure is incurred determines the regime that applies for up to ten years. That is a decision worth taking deliberately rather than by accident.
• Audit your CGS register. Separate items that must keep running under the transitional rule from spend that will fall outside the scheme from 29 July 2026.
• Drop computers from CGS tracking — prospectively only. New computer expenditure needs no CGS entry. Historic computer capital items still do.
• Model the £600,000 line on property projects. Phasing, scope and what counts as capital expenditure on the works all affect which side of the threshold a project lands on.
• Keep your evidence. Simplification does not reduce the standard of record-keeping HMRC expects on the items that remain.

Frequently Asked Questions

Does the Capital Goods Scheme still apply to computers bought before 29 July 2026

Yes. Computer capital items already in the scheme continue through their full five-interval adjustment period. Only expenditure incurred on or after 29 July 2026 falls outside the scheme.

Is the new £600,000 threshold inclusive of VAT

No. The £600,000 threshold for land, buildings and civil engineering works is exclusive of VAT.

What happens to property expenditure of, say, £400,000 incurred after 29 July 2026

It falls below the new threshold and is not a capital item, so no CGS adjustment period applies. The same £400,000 spent before 29 July 2026 would have been caught, and would continue to run.

Do the changes affect input VAT recovery in the quarter of purchase

No. Normal partial exemption and input tax recovery rules still determine your initial claim. The reform only changes whether that claim must be revisited over an adjustment period.

How TaxDigit Can Help

The CGS sits at the intersection of VAT, partial exemption and property — exactly the territory where a small timing decision has a ten-year consequence. Our Guildford-based team reviews CGS registers, models the £600,000 threshold against planned works, and advises on the timing of expenditure either side of 29 July 2026. Our VAT specialists handle the compliance, while our tax advisory and planning service builds the reform into your wider capital expenditure strategy. The legislation itself is available as the Value Added Tax (Amendment) Regulations 2026.

Plan Ahead With TaxDigit

The reform takes effect on 29 July 2026 — which means the planning window is now, not later. If you are budgeting property works or a significant IT investment, a short conversation before you commit the spend can be worth a decade of avoided adjustments. As premier accountants in Surrey serving clients across the UK, TaxDigit will help you get the timing and the treatment right. Call 01483 230 777, email info@taxdigit.co.uk, or visit our contact page for bespoke advice.