VAT at 5% on a domestic energy bill
Domestic gas and electricity carry VAT at the reduced rate of 5%, so the tax in a bill that already includes it is 5/105 of the total — one twenty-first, not one twentieth. A bill of £126 including VAT is £120 of energy and £6 of tax. The 5% rate has applied since 1 September 1997, when it was cut from the 8% introduced in 1994; business premises are standard-rated at 20% unless usage is low enough to qualify for the domestic rate.
The same amount in each UK band
| Standard | 20.00% | 1/6 | £105.00 | £21.00 | £126.00 |
| Reduced | 5.00% | 1/21 | £120.00 | £6.00 | £126.00 |
| Zero-rated | 0.00% | 0 | £126.00 | £0.00 | £126.00 |
An estimate, not legal advice. Rules vary by jurisdiction and change over time. Check the current position with a qualified professional before relying on it.
The VAT fraction at 5% is 1/21, so a £126 energy bill contains exactly £6.00 of VAT.
Taking 5% off the gross instead gives £119.70, which is 30p adrift — small on one bill and not small across a year of them.
A business supply is standard-rated at 20% unless it falls under the low-usage threshold, in which case the 5% domestic rate applies to the whole supply.
How it works
The formula
Adding VAT to a price that excludes it:
vat = round(net x rate / 100)
gross = net + vat
Removing VAT from a price that includes it:
vat = round(gross x rate / (100 + rate))
net = gross - vat
UK bands and their VAT fractions:
standard 20% 20/120 = 1/6
reduced 5% 5/105 = 1/21
zero 0% no tax
round = to the nearest penny, or towards zero when the
invoice trader's concession is chosen
Only the VAT is rounded. The third figure is derived from
the other two, so net + vat = gross to the penny, always.
What it assumes
- The three bands are the rates in force. Which band a supply falls in is a question about the supply rather than about arithmetic, and HMRC publishes the lists — this tool applies a rate, it does not classify goods.
- Rounding is applied to the VAT and the third figure is derived from the other two. Rounding all three independently leaves them a penny apart whenever both halves land on a half-penny, which is how an invoice fails to add to its own total.
- The rounding concession is written for traders issuing VAT invoices. It is not the general rule and not a retail scheme, which is why it is off by default.
- Historic rates are not held here. The standard rate was 17.5% until 3 January 2011 and 15% for thirteen months before that, and those go in the "Another rate" field — which starts on 17.5 because re-checking an old invoice is the usual reason to need it.
- Figures are in pounds because UK VAT is denominated in pounds. Nothing is converted and no exchange rate is applied anywhere.
Common questions
Is the 5% rate the same for gas, electricity and heating oil?
For a domestic supply, yes — fuel and power for a dwelling is reduced-rated whether it arrives as gas, electricity, heating oil, solid fuel or district heating. What changes the answer is who is being supplied rather than what: the same fuel to a commercial customer is standard-rated unless the low-usage rules bring it into the domestic band.
Why is the reduced rate 5% and not zero?
Domestic fuel was zero-rated from 1973 until 1994, when VAT at 8% was introduced on it. Once a zero rate has been given up, EU VAT law as it then applied did not allow it to be reintroduced, so the 1997 cut could go to 5% and no lower. The constraint is historical; the rate has stayed at 5% since.
Sources
Method written and checked by Tessalor on Jul 31, 2026.
The full method, worked example and every assumption behind this figure are on UK VAT Calculator.