.png)
Care homes that qualify for reduced rate VAT on electricity can now benefit from a temporary 0% rate until 30 June 2027. Alongside this relief, the 2026 Budget introduced changes to planned gas charges and future energy policy costs. For care home owners, now is a good time to review energy bills, check VAT eligibility and assess upcoming contract renewals.
Energy remains one of the most significant operating expenses for many residential care providers.
Unlike other businesses, care homes need to maintain comfortable temperatures, provide hot water and operate essential equipment throughout the day and night.
With inflation, rising borrowing costs and uncertainty in international energy markets continuing to affect operating budgets, even relatively small savings can make a meaningful difference.
Following the government's 2026 Budget, we have reviewed the key energy announcements with our specialist energy adviser, Peter Bryant, to explain what care home owners should know.
One of the most relevant energy announcements for care home operators is the extension of temporary VAT relief on electricity.
From 1 October 2026, qualifying electricity supplies in Great Britain became eligible for a 0% VAT rate rather than the usual reduced rate of 5%.
The 2026 Budget extended this relief until 30 June 2027.
Importantly, the relief is not limited to ordinary domestic households.
Residential care homes that already qualify for the reduced 5% rate on electricity may also benefit.
However, eligibility depends on how the electricity is used and whether the relevant HMRC conditions are satisfied.
For illustration, a care home with an annual qualifying electricity bill of £40,000 before VAT would ordinarily pay £2,000 in VAT at the reduced 5% rate.
At 0%, that VAT charge would be removed for electricity supplied during the qualifying period.
The actual saving depends on electricity consumption, billing dates, eligibility and the duration of the temporary relief.
This makes it worth checking that your electricity supplier is applying the correct VAT treatment.
No. The temporary zero rate applies to qualifying electricity supplies.
Gas used for qualifying residential accommodation may still benefit from the existing reduced 5% VAT rate, subject to HMRC requirements.
Care home owners should therefore review both electricity and gas invoices rather than assuming the same VAT rate applies to each.
Some care businesses may be paying more VAT than necessary because their energy account has not been correctly classified or the supplier does not hold the appropriate declaration.
For eligible care homes, it is worth checking:
Depending on the circumstances and applicable rules, it may be possible to correct historic VAT treatment.
Quality Care Group can help care providers access specialist assistance to review energy invoices, assess eligibility and explore whether a correction or refund may be appropriate.
The Gas Shipper Obligation was a proposed charge intended to help fund hydrogen production projects.
The cost would have been recovered through an additional charge associated with gas supplies.
Under the 2026 Budget, the government confirmed that the planned obligation will no longer be introduced.
Instead, the relevant hydrogen support will be funded through public expenditure.
Care homes will avoid this particular additional planned charge on gas bills.
However, cancelling the obligation does not mean gas prices will fall automatically.
Wholesale energy markets, network charges, supplier pricing and other costs will continue to influence the amount businesses pay.
For care providers, the announcement is welcome in terms of avoiding a potential future cost, but it should not replace regular reviews of existing gas contracts.
The Climate Change Levy (CCL) is an environmental tax charged on certain non domestic energy supplies.
Not every care home will pay the levy. Qualifying residential or other exempt supplies may fall outside its scope.
For organisations with taxable energy supplies, however, the rates are relevant to future budgeting.
Check whether CCL appears on your energy invoices and whether it is correctly applied.
Where a care home qualifies for an exemption, the appropriate documentation and supplier arrangements should be reviewed.
For businesses that do pay CCL, the scheduled changes should be considered when preparing future energy budgets.
The Budget also announced plans for a new Cost Control Framework, expected to be introduced at the 2027 Spending Review.
The framework is intended to place greater control over policy related costs included in energy bills.
Until it is introduced, the government has committed to avoiding additional policy costs unless they are necessary for energy security or help reduce bills.
The longer term intention is to manage these costs more effectively over the following decade.
No. The framework is intended to control certain charges, but wholesale prices, energy consumption, network costs and supplier contracts will continue to affect business energy bills.
For care home owners, the announcement provides some indication of the government's future approach, but it does not remove the need for careful energy procurement.
The Budget changes provide a useful opportunity to examine current arrangements and identify potential savings.
Confirm whether your care home qualifies for the temporary 0% electricity rate and whether the correct VAT treatment is being applied to gas.
If you are unsure, seek specialist assistance rather than assuming the supplier has automatically classified the account correctly.
2. Review your energy contract renewal dates
Care homes approaching the end of fixed contracts should review their options well before renewal.
Leaving decisions until the last minute can limit the opportunity to compare suppliers, assess market conditions and choose appropriate contract terms.
3. Understand what makes up your energy bill
An energy invoice includes more than the wholesale cost of electricity or gas.
Standing charges, network costs, taxes and other charges can affect the final amount payable.
Understanding these components can help identify discrepancies and support more informed procurement decisions.
4. Review consumption across your premises
For operators with multiple care homes, comparing energy consumption across properties may reveal opportunities to improve efficiency.
Heating systems, lighting, insulation, equipment and building condition can all influence energy usage.
Any efficiency measures should be considered alongside residents' comfort, safety and care requirements.
5. Seek specialist energy procurement advice
Energy markets can change quickly, making the timing and structure of contracts important.
Specialist advice can help care providers understand available tariffs, review existing arrangements and consider the most suitable approach to future renewals.
Do care homes qualify for 0% VAT on electricity?
Eligible care homes in Great Britain that qualify for the reduced 5% VAT rate on electricity can benefit from the temporary 0% rate from 1 October 2026 until 30 June 2027. Eligibility depends on the relevant HMRC rules and the use of the electricity.
Is gas VAT also 0% for care homes?
No. The temporary zero rate applies to qualifying electricity supplies. Qualifying gas supplies may still be eligible for the reduced 5% VAT rate.
Can care homes reclaim overpaid energy VAT?
Potentially, depending on the circumstances, historic billing arrangements and applicable correction rules. A specialist review can help determine whether an overpayment has occurred and what action may be available.
What is the Climate Change Levy for care homes?
The Climate Change Levy is a tax on certain non domestic energy supplies. Some care home supplies may qualify for exemption, depending on their use and the applicable rules. Providers should check whether the levy is being correctly applied.
Will the cancellation of the Gas Shipper Obligation reduce care home gas bills?
The cancellation prevents a proposed additional charge from being introduced. It does not guarantee that existing gas prices will decrease.
Care homes should review their energy arrangements well ahead of contract expiry, allowing time to assess market conditions, compare options and understand renewal terms.
The 2026 Budget introduced several changes that could affect the energy costs of UK care providers.
For some organisations, the most immediate opportunity may be checking whether the correct VAT rate is being applied. For others, reviewing contract renewals, understanding charges or improving energy procurement arrangements could prove equally valuable.
At Quality Care Group, we understand that managing operating costs is an important part of running a sustainable care business.
Through our Business Solutions offering, we can connect care providers with specialist energy support to review existing arrangements, explore potential savings and make informed decisions about future contracts.
Whether you operate a single care home or manage a larger care group, understanding your energy costs is an important step towards improving financial resilience.
This article is provided for general information only. Energy VAT eligibility, tax treatment and potential savings depend on individual circumstances and applicable legislation. Professional advice should be sought where appropriate.
