VAT

The Budget extends the 0% VAT cut on household electricity to July 2027, and puts around £50 off the April 2027 price cap

The cut was funded only to the end of the 2026 to 2027 financial year. It now runs a few months longer, which matters if you are working out what a solar panel's output is worth.

29 October 2026 · Source: GOV.UK

The Treasury's Budget 2026 document, published on 28 October, says the government is extending the VAT cut on electricity until July 2027. The Department for Energy Security and Net Zero's Budget explainer for households says the same, in its words: "We're extending that VAT cut until July 2027 to continue giving breathing space to households on their bills." It also repeats that removing VAT from household electricity bills on 1 October saves households an average of £45 a year. The Budget document adds that the extension is expected to take around £50 off the annual Ofgem price cap in April 2027.

Our 7 October article on the 1 October cut noted that the government had funded it only for the 2026 to 2027 financial year, which ends on 31 March 2027. That was the date a long-lived solar payback calculation could not safely lean on. This announcement moves the end date to July 2027. Neither page we read gives a cost for the extension, says whether it applies outside England, or says whether new legislation is needed, so treat the July 2027 end date as announced rather than finished. We have not seen the underlying legal change.

What it means for solar buyers is small and one-directional. Each unit your panels generate and you use at home is a unit you do not buy, so its value is the unit price you would have paid. Zero VAT instead of 5% makes that avoided price roughly 5% lower than it would otherwise be (our own arithmetic from the two rates, not a government figure). The extension keeps that lower value in place for a few more months. It does not change the Smart Export Guarantee, which is paid by suppliers per unit exported, and it is separate from the 0% VAT on installing panels and batteries, which is a cut to the up-front cost with its own end date.

What to check: a quote that shows a payback period should state the electricity price it assumed and whether VAT is at 0%, 5% or 20% in that figure. Nothing in these pages promises the cut beyond July 2027, so a 25-year payback built on today's zero rate is assuming something nobody has promised. Ask the installer to show the figure with and without the VAT cut, and compare like for like.

Read the original: GOV.UK. Commentary is Sandwich Solar's own editorial view; the original reporting is credited to its publisher.

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