diff --git a/app/dao/organisation_dao.py b/app/dao/organisation_dao.py
index 225299b6b2..5b3c28cf36 100644
--- a/app/dao/organisation_dao.py
+++ b/app/dao/organisation_dao.py
@@ -4,6 +4,7 @@
 
 from app import db
 from app.constants import NHS_ORGANISATION_TYPES
+from app.dao.annual_billing_dao import set_default_free_allowance_for_service
 from app.dao.dao_utils import VersionOptions, autocommit, version_class
 from app.dao.email_branding_dao import dao_get_email_branding_by_id
 from app.dao.letter_branding_dao import dao_get_letter_branding_by_id
@@ -117,6 +118,7 @@ def dao_update_organisation(organisation_id, **kwargs):
 
     if "organisation_type" in kwargs:
         _update_organisation_services(organisation, "organisation_type", only_where_none=False)
+        _update_organisation_services_free_allowance(organisation)
 
     if "crown" in kwargs:
         _update_organisation_services(organisation, "crown", only_where_none=False)
@@ -158,6 +160,11 @@ def _update_organisation_services(organisation, attribute, only_where_none=True)
         db.session.add(service)
 
 
+def _update_organisation_services_free_allowance(organisation):
+    for service in organisation.services:
+        set_default_free_allowance_for_service(service, year_start=None)
+
+
 @autocommit
 def dao_archive_organisation(organisation_id):
     organisation = dao_get_organisation_by_id(organisation_id)
diff --git a/tests/app/dao/test_organisation_dao.py b/tests/app/dao/test_organisation_dao.py
index 7ee8654eee..4fdb7aaa2c 100644
--- a/tests/app/dao/test_organisation_dao.py
+++ b/tests/app/dao/test_organisation_dao.py
@@ -7,6 +7,7 @@
 from sqlalchemy.exc import IntegrityError, SQLAlchemyError
 
 from app import db
+from app.dao.annual_billing_dao import set_default_free_allowance_for_service
 from app.dao.organisation_dao import (
     dao_add_email_branding_list_to_organisation_pool,
     dao_add_email_branding_to_organisation_pool,
@@ -28,7 +29,7 @@
     dao_update_organisation,
 )
 from app.errors import InvalidRequest
-from app.models import Organisation, Service
+from app.models import AnnualBilling, Organisation, Service
 from tests.app.db import (
     create_annual_billing,
     create_domain,
@@ -165,6 +166,11 @@ def test_update_organisation_updates_the_service_org_type_if_org_type_is_provide
 ):
     sample_service.organisation_type = "local"
     sample_organisation.organisation_type = "local"
+    set_default_free_allowance_for_service(service=sample_service, year_start=None)
+    annual_billing = AnnualBilling.query.all()
+    assert len(annual_billing) == 1
+    assert annual_billing[0].service_id == sample_service.id
+    assert annual_billing[0].free_sms_fragment_limit == 10000
 
     sample_organisation.services.append(sample_service)
     db.session.commit()
@@ -177,6 +183,10 @@ def test_update_organisation_updates_the_service_org_type_if_org_type_is_provide
         Service.get_history_model().query.filter_by(id=sample_service.id, version=2).one().organisation_type
         == "central"
     )
+    annual_billing = AnnualBilling.query.all()
+    assert len(annual_billing) == 1
+    assert annual_billing[0].service_id == sample_service.id
+    assert annual_billing[0].free_sms_fragment_limit == 30000
 
 
 def test_update_organisation_updates_the_service_branding_if_branding_is_provided(
diff --git a/tests/app/organisation/test_rest.py b/tests/app/organisation/test_rest.py
index 9c952be339..ddd476fe54 100644
--- a/tests/app/organisation/test_rest.py
+++ b/tests/app/organisation/test_rest.py
@@ -9,6 +9,7 @@
 from sqlalchemy.exc import SQLAlchemyError
 
 from app.constants import INVITE_ACCEPTED, INVITE_CANCELLED
+from app.dao.annual_billing_dao import set_default_free_allowance_for_service
 from app.dao.email_branding_dao import dao_get_email_branding_by_id
 from app.dao.letter_branding_dao import dao_get_letter_branding_by_id
 from app.dao.organisation_dao import (
@@ -354,6 +355,43 @@ def test_post_update_organisation_updates_fields(
     assert organisation[0].can_approve_own_go_live_requests == can_approve_own_go_live_requests
 
 
+def test_post_update_organisation_updates_fields_rollback_if_update_service_free_allows_fails(
+    admin_request,
+    notify_db_session,
+    sample_service,
+    mocker,
+):
+    org = create_organisation(organisation_type="local")
+    data = {
+        "organisation_type": "central",
+    }
+
+    organisation = Organisation.query.all()
+    assert len(organisation) == 1
+    assert organisation[0].id == org.id
+    assert organisation[0].organisation_type == "local"
+
+    set_default_free_allowance_for_service(service=sample_service, year_start=None)
+    annual_billing = AnnualBilling.query.all()
+    assert len(annual_billing) == 1
+    assert annual_billing[0].service_id == sample_service.id
+    assert annual_billing[0].free_sms_fragment_limit == 5000
+
+    mocker.patch("app.dao.organisation_dao._update_organisation_services_free_allowance", side_effect=SQLAlchemyError)
+    with pytest.raises(expected_exception=SQLAlchemyError):
+        admin_request.post("organisation.update_organisation", _data=data, organisation_id=org.id)
+
+    organisation = Organisation.query.all()
+    assert len(organisation) == 1
+    assert organisation[0].id == org.id
+    assert organisation[0].organisation_type == "local"
+
+    annual_billing = AnnualBilling.query.all()
+    assert len(annual_billing) == 1
+    assert annual_billing[0].service_id == sample_service.id
+    assert annual_billing[0].free_sms_fragment_limit == 5000
+
+
 @pytest.mark.parametrize(
     "domain_list",
     (