VAT on communal electricity: what the 0% rate means for managing agents

Yes, in most cases. From 1 October 2026 to 31 March 2027, electricity for domestic use in England, Wales and Scotland carries 0% VAT, and HMRC treats power for the common parts of a block of flats as domestic use, whatever the amount. A communal supply to a residential block that is still billed at 20% is worth checking now.

This guide covers which supplies qualify, why some are still billed at the standard rate, who can ask for the rate to be changed, and what to do with bills that run across 1 October. It is a summary of HMRC guidance for the people who process the bills. It is not tax advice, and the client’s accountant or the supplier has the final word on any supply.

What changed on 1 October 2026?

Electricity for qualifying use in Great Britain moved from the reduced rate of 5% to 0% for supplies made from 1 October 2026 to 31 March 2027. The change is set out in Revenue and Customs Brief 10 (2026) and made law by SI 2026/987, which came into force on 1 October 2026.

• Northern Ireland stays at 5%.

• Gas stays at 5% everywhere in the UK.

• Heat and hot water sold through a heat network stay at 5%.

• The rules on what counts as qualifying use have not changed. Only the rate has.

Does communal electricity in a block of flats qualify?

For a residential block, yes. HMRC treats power for the common parts of a block of flats, such as corridors, lifts and stairways, as domestic use, whatever the amount. VAT Notice 701/19 (section 10.4) applies the reduced rate to fuel and power supplied to the landlord, managing agent or residents’ association of accommodation used for qualifying purposes, and section 3.2.1 counts corridors, lifts, hallways and stairways as part of the residential unit.

HMRC’s internal manual is direct about quantity: for these types of accommodation the reduced rate applies to any quantity of fuel supplied (VAT Fuel and Power manual, VFUP2330). So landlord supplies for lighting, lifts, door entry, pumps and communal plant in a wholly residential building all qualify, large or small.

When does the 33 kWh a day limit matter?

Notice 701/19 also says that any electricity supply averaging 33 kWh a day or less (1,000 kWh a month) counts as domestic use, whoever the customer is. That limit is a safe harbour. It is not the test for a residential block, and a large supply in a block of flats still qualifies.

The limit is useful in three situations:

• Mixed-use buildings, where it can make the whole supply qualify whatever the mix.

• Supplies not used in a building, such as estate road lighting, gates or an open car park, where HMRC guidance is thin. Treat these as a question for the client’s accountant.

• Supplies bought by someone other than the landlord or management company, such as a separate energy services company.

The limit counts all the electricity the same supplier provides to that customer at the premises. Several landlord meters at one block from one supplier are added together. They are not tested meter by meter.

What about mixed-use blocks?

Where shops or offices have their own supplies, which is common, the landlord supply serving the flats and common parts is wholly qualifying use. Where one landlord supply serves both, Notice 701/19 (sections 3.4 and 3.5) applies a 60% rule:

• If 60% or more of the electricity is for qualifying use, the whole supply is treated as qualifying.

• Below 60%, the supply is apportioned. The qualifying share is zero rated in Great Britain and the rest is standard rated.

• Any fair and reasonable method of apportionment is acceptable, such as floor area adjusted for how the space is used.

Suppliers usually ask for a signed VAT declaration showing the qualifying percentage. HMRC’s manual says such certificates are the usual evidence but are not legally required (VFUP2530).

Does communal heating qualify?

Electricity bought by the landlord or management company to run a communal boiler, heat pump or plant in a residential building is qualifying use, so it is 0% in Great Britain until 31 March 2027. If the plant also serves commercial units, the 60% rule applies.

Two cases are different. Heat sold to residents through a heat network stays at 5%, because the 0% rate covers electricity only. And where a separate heat network operator buys the electricity and sells heat on, its electricity is likely to be standard rated. That second point is our reading of HMRC manual text written about gas and combined heat and power, so it is one for the operator’s accountant.

Why does the VAT rate matter to leaseholders?

On most residential blocks the VAT on communal electricity can’t be recovered, so it ends up in the service charge. Residential service charges are payment for an exempt supply (VAT Notice 742, section 12.1), and Notice 701/19 section 3.2.1 says VAT a landlord incurs on common-area power will not be recoverable. A typical residents’ management company or RTM company makes only exempt supplies, so the VAT goes into the accounts gross.

There are exceptions, where the VAT may be partly or fully recoverable:

• Commercial buildings that have opted to tax. Their supplies are not domestic anyway.

• Mixed-use blocks with a VAT-registered landlord, who may recover a share.

• Freehold estates, depending on the VAT treatment the landlord chose for estate charges.

• Local authority landlords, whose position on recovery is different.

In Scotland the same 0% rule applies, and owners usually bear the VAT through the factor’s charges in the same way.

Why would a communal supply still be billed at 20%?

Communal supplies are usually on business accounts, and HMRC notes that many suppliers charge 20% unless they hold a VAT declaration (VFUP2530). The supplier often has no way of knowing the account powers the common parts of a block of flats unless the customer tells it.

The same declaration usually settles Climate Change Levy. The levy does not apply to electricity for domestic use (Notice 701/19 section 2.8), so a qualifying supply billed at 20% will usually carry the levy too, and the levy can’t be recovered either.

Who can ask the supplier to change the rate?

The account holder. That is usually the residents’ management company, RTM company, freeholder or landlord. HMRC treats a wrong rate as a commercial matter between supplier and customer (VAT Notice 700/45, section 5.2).

• The agent can spot the problem, gather the bills and note what each supply powers.

• The agent can prepare the VAT declaration for the client.

• The declaration is signed by a responsible officer of the customer, such as an RMC director or company secretary. Notice 701/19 section 3.5 warns that an incorrect certificate can lead to a penalty, so the client should sign only a percentage it can stand behind.

• An agent can deal with the supplier directly where the management agreement or a letter of authority allows it.

What about bills from before 1 October?

The rules on what qualifies haven’t changed, so a communal supply that qualifies for 0% now should have been at 5% before 1 October. If a residential supply was billed at 20%, it is worth asking the supplier about earlier bills.

Correcting past bills is up to the supplier. The customer can’t claim the VAT from HMRC; only the supplier can, and its claim is limited to four years. Treat it as worth asking, and don’t count on it in a budget.

What about bills that run across 1 October?

A bill that runs across 1 October will usually show two rates on a qualifying supply: 5% up to 30 September and 0% from 1 October. HMRC lets suppliers split it by when the electricity was used, ideally from meter readings, and accepts other fair and reasonable methods such as a split by days. We cover the arithmetic and the edge cases in splitting a bill across a VAT rate change.

What happens after 31 March 2027?

The 0% rate ends on 31 March 2027, and qualifying electricity returns to 5% from 1 April unless the rate is extended. Check gov.uk for any extension before you set next year’s budgets. Bills that run across 31 March will need the reverse split, and accruals for periods that straddle either date need the right rate on each side.

A service charge year that includes the 0% period will show a one-off drop in VAT on electricity. It is worth a line in the accounts or the covering letter, so leaseholders are not surprised when it returns.

A checklist for this winter

• List every landlord and communal electricity supply your clients hold in Great Britain.

• For each supply, note the VAT rate on the latest bill, whether Climate Change Levy is charged, and what the supply powers.

• Flag any supply to a wholly residential building billed at 20%, or at 5% for usage after 1 October.

• For mixed-use buildings, ask the client’s accountant to confirm the qualifying share.

• Prepare a VAT declaration for the client to sign and send to the supplier.

• Ask the supplier whether earlier bills can be corrected.

• Check that bills spanning 1 October show the split, and plan for the reverse split at 31 March.

• Set next year’s budgets at 5% for electricity unless gov.uk confirms an extension.

Most of that list is about reading every bill the same way, every time. The utility invoice validation checklist covers the other checks worth running on each bill, and our guide to how managing agents process utility bills covers where errors creep in.

Where Dataforge Invoices fits

Dataforge Invoices is AP software for UK block and estate managing agents. It reads electricity, gas and water bills with supplier-specific layouts, takes the current charges, and reads supply address, meter, period and consumption, with Climate Change Levy and VAT checked. It codes each bill to the property, fund and heading, and anything uncertain goes to your team with the reason named. See utility bill processing for property managers.

Sources: Revenue and Customs Brief 10 (2026); SI 2026/987; VAT Notice 701/19 sections 2.8, 3.2, 3.4, 3.5, 5.2 and 10.4; HMRC VAT Fuel and Power manual VFUP2330 and VFUP2530; VAT Notice 700/45; VAT Notice 742. Checked against gov.uk on 15 October 2026.