Communal electricity: 0% VAT runs to June 2027, so check your block's bills for 20% VAT and levy

What happened

At the Budget on 28 October 2026 the Chancellor extended the temporary zero rate of VAT on household electricity. HMRC’s updated guidance, VAT Notice 701/19 (updated 28 October), says the zero rate applies in Great Britain from 1 October 2026 to 30 June 2027 for “domestic supplies of electricity and other supplies of qualifying use”. It was due to end on 31 March 2027. In Northern Ireland, qualifying electricity stays at the 5% reduced rate.

This is in force now. Gas for domestic use is not covered by the zero rate and stays at 5%.

What it means for your building

Many blocks pay a separate “landlord supply” for the lights in the hallways, the lift, door entry and similar shared equipment. That account is often in the name of the freehold, RTM or residents’ management company, and suppliers sometimes put it on a business contract. A business contract usually carries 20% VAT and the Climate Change Levy, a tax on business energy use.

HMRC’s notice says the domestic rules turn on use, not on who pays:

• “corridors, lifts, hallways and stairways in a residential unit” are treated as part of the residential unit (paragraph 3.2.1);
• a supply “to the landlord, managing agent or residents’ association of accommodation that is used for qualifying purposes” is taxed at the domestic rate (paragraph 10.4);
• the Climate Change Levy “does not apply to taxable commodities used by domestic consumers”, with “domestic use” meaning the same as for VAT (paragraph 2.8);
• small supplies of up to 1,000 kWh a month on average at one premises are always treated as domestic, with no certificate needed (paragraph 5.2).

The landlord company cannot reclaim VAT on the communal supply, because the notice says it relates to an exempt supply of residential accommodation. So any VAT charged in error goes straight into the service charge.

A worked example (illustrative figures). A 40-flat block uses 20,000 kWh a year on its landlord supply at 28p a unit, which is £5,600 before tax. At 20% VAT that adds £1,120, plus the levy. At the 0% domestic rate it adds nothing. That is about £28 a flat a year in VAT alone. Your own figures will differ.

Where the building is partly commercial, for example a shop or office on the same supply, the notice has mixed-use rules: if 60% or more of the supply is for qualifying use, the whole supply can be treated as qualifying, and the supplier may ask for a signed certificate of the percentage (paragraphs 3.4 and 3.5).

What to do now

• Find the latest bill for each communal electricity account and look at the VAT rate and any “CCL” or Climate Change Levy line.
• If it shows 20% VAT or the levy on a supply that only serves the residential parts, ask the supplier to check its VAT treatment against VAT Notice 701/19 and to confirm in writing.
• If part of the building is commercial, work out the share of use and ask the supplier whether it needs a certificate. Anyone who gives an incorrect certificate may face a penalty, so get the percentage right.
• Ask the supplier whether it will correct earlier bills, and take advice from an accountant or VAT adviser before relying on a refund.
• Note in the service charge budget that the zero rate is due to end on 30 June 2027.

This is general information about HMRC guidance, not tax advice. How your supply is billed depends on its facts, and your supplier and adviser should confirm it.

How Freeholdpilot helps

Freeholdpilot’s directors’ portal keeps supplier contracts and bills in the building’s document drive, holds the service charge budget, and puts dates such as the end of the zero rate on the compliance calendar so the board can plan for the change.