What is different about business energy?

While the gas and electricity that powers your home is the same that powers your business, energy suppliers treat household and business energy differently. Here, we explain why this is the case.

Business and household energy contracts work differently 

The key difference between business and household energy is how suppliers set up contracts.

Generally, domestic energy users are given a ‘rolling’ contract with no definitive end date. This allows consumers to switch suppliers should they find cheaper energy elsewhere. While fixed term contracts do exist, they’re often easy to get out of for a nominal cancellation fee.  

For business energy contracts, however, customers are almost always locked into a 1, 2, or 3-year contract, and have no option to cancel early. That means businesses pay the same amount for energy over the course of their contract and are not affected by changes in the wholesale price of energy.

Businesses and households pay different VAT rates 

Business energy rates are charged at the current rate of VAT (20%), whilst domestic energy is charged at 5% VAT. Businesses must also pay the Climate Change Levy (CCL) on gas and electricity, which fluctuates year-on-year.  

However, should your business qualify for de minimis (low energy consumption), it may be eligible to pay VAT at a reduced rate.

Business and household energy meters work differently

The way in which suppliers monitor business electricity consumption works differently.

Unlike households, business electricity contracts are linked to a unique meter profile, which corresponds to the first two digits of their meter reference number. Prices vary depending on the profile in place, so you should always make sure that the meter installed is suitable for your business.

Business energy rates can change frequently 

Unlike household energy rates which generally remain stable for six months or more, business energy rates change often because they’re based on the daily wholesale price for gas and electricity.  

That means the price quoted for business energy could be significantly less or more expensive on any given day. By monitoring the market closely, you could potentially pay less for your business energy contract than you would on another date.  

Should you have any queries regarding business energy, please don’t hesitate to get in touch via our Contact Us page or by calling 0845 230 0011.

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