Choosing a business energy tariff is different to choosing one for domestic purposes. This means that, if you’re setting up a business, it’s important to make sure you fully understand how business energy works.
Here’s all you need to know…
Who are the main business energy suppliers?
The ‘Big Six’ energy suppliers – British Gas, EDF Energy, E.ON, npower, Scottish Power and SSE – all supply energy to businesses.
However, in recent years there’s been a dramatic rise in the number of smaller, independent energy suppliers that provide either domestic or business energy or both.
Many of these smaller suppliers offer cheaper energy prices than the Big Six. They also regularly receive high ratings for their customer service, and some have a specific focus on renewable or green energy tariffs. These include:
- Good Energy
- Green Energy UK
- Hudson Energy
- Octopus Energy
- Smartest Energy
- Total Gas & Power
Other smaller independent suppliers include:
- Axis Energy
- Better Energy
- Bristol Energy
- Corona Energy
- Haven Power
- Opus Energy
- Energy (business electricity only)
- Robin Hood Energy
- Utility Warehouse.
When comparing business energy tariffs you’ll need to decide whether you’d prefer a household name Big Six supplier or whether you’re happy to choose a smaller supplier and potentially save money on your bills.
What types of tariffs are available?
You can usually choose either a fixed term tariff or a variable rate tariff for your business energy supply.
With a fixed tariff contract, you pay an agreed rate for each unit of energy you use over a fixed period of time. Contracts typically last between one and five years and generally, the longer the term, the more expensive the tariff.
It can be worth paying a higher price if you want the security of knowing what your costs will be over an extended period, meaning you can budget accordingly.
Should you need to get out of your fixed deal early, bear in mind that exit fees can be high, or you may find you are simply not permitted to leave your contract before the term ends.
With a variable tariff contract, the rate you pay for your energy will change depending on fluctuations in prices on the wholesale energy market during the length of your contract.
This type of tariff is generally more expensive than a fixed rate tariff, but if wholesale prices were to fall steeply, a variable rate tariff could follow suit – something a fixed rate tariff could not do.
Note that once your contract ends (fixed or variable), you’ll automatically be put on a pricey ‘out-of-contract’ rate so it’s a good idea to compare deals in advance and switch to a new contract as soon as possible – ideally to coincide with your end date.
You should also be aware of so-called ‘deemed tariffs’ which you may have to pay if you move into new business premises. Again, these are expensive so get switching as soon as you can. Confusingly, some suppliers also refer to out-of-contract rates as deemed rates.
Rate variation for different times of day & week
Some providers charge different amounts for each unit of energy according to the time of day, such as ‘Day’, ‘Evening’ and ‘Night’, and some have a weekend rate as well.
The ‘Day’ rate is generally the more expensive, so if your business uses a lot of energy outside this peak time, it might be worth seeking out one that allows you to get the energy you need at a lower rate.
Can I get green business energy?
Yes. As mentioned above, a number of business energy suppliers offer green energy tariffs where some or all of the electricity you use is matched with the amount your supplier buys from renewable energy sources. This could include solar, wind, biomass or hydroelectric power.
Some suppliers, such as Bulb, also offset carbon emissions from the gas they supply by supporting carbon reduction projects. Others, such as Good Energy, have their own wind and solar farms.
Do I have to get gas and electricity from the same firm?
Unlike domestic energy, dual fuel business energy tariffs – where both your gas and your electricity come from the same energy supplier – tend not to exist.
You can still get both fuels from the same firm – you’ll just have separate tariffs for each.
This means you can choose a different supplier for both your business gas and business electricity if you wish to or if it works out to be cheaper.
Is business energy cheaper than domestic energy?
Average unit rates for business energy are much cheaper than for domestic energy and generally, the larger the business, the lower the unit rate.
This is simply because suppliers buy commercial energy in bulk to last the duration of the contract, whereas domestic energy suppliers buy it each month.
However, with a domestic energy tariff, you only pay 5% VAT on top of bills, whereas most businesses pay 20% VAT (see below).
Businesses also have to pay the Climate Change Levy (CCL), which is an environmental tax aimed at encouraging businesses to improve energy efficiency and reduce carbon emissions. As of 1 April 2020, this stood at a rate of 0.811p per kWh (kilowatt hour) for electricity and 0.406p per kWh for gas.
Certain businesses and organisations only have to pay 5% VAT and are also exempt from the CCL. These include:
- charities and not-for-profit organisations
- businesses that use an average of less than 33 kWh of electricity per day (1,000 kWh per month) and 145 kWh of gas per day (4,397 kWh per month).
- businesses that have a residential element such as B&Bs, care homes, caravan parks or campsites. The 5% rate will apply to the whole bill so long as you use 60% or more energy for domestic purposes.
Do I need a special electricity meter?
Large businesses that use 100kW or more of electricity every 30 minutes (such as warehouses, factories and big offices) are required by law to have a half-hourly (HH) meter fitted. This type of meter sends data to your supplier on a half-hourly basis.
Businesses that use 70kW or more of electricity every 30 minutes can also choose to have a half-hourly meter installed if they wish.
If your business does not require a half-hourly meter, you may want to consider having a smart meter installed instead. Smart meters can help you to better monitor how much energy your business uses and ensure your bills are accurate. Your smart meter will send regular readings to your supplier so that you don’t have to submit monthly readings yourself.
All UK businesses (and households) must be offered a smart meter by the end of 2024, although this deadline may be adjusted as the smart meter roller was suspended following the onset of the coronavirus pandemic.
How do I pay for business energy?
The quickest and easiest way to pay for your energy bills is by monthly direct debit, and some suppliers offer a discount if you do so. However, be aware your monthly bill will change according to how much energy you use, so it’s important to check you are paying the correct amount (which is where a smart meter can help) and that you are not building up either too much credit or debt on your account as the months go by.
You may also use more energy in the winter, so this also needs to be factored into your calculations.
You can talk to your supplier if you need to make adjustments to your regular payments.
Some suppliers also allow you to pay by direct debit each quarter, or alternatively you can pay by bank transfer or BACS after your monthly or quarterly bill arrives.
Some business energy bills also have a bank giro slip attached which you can take to your local Post Office to make the payment, or you may be able to pay your bill by cheque. Note that you may have to pay a fee with both of these options.
Will I need different deals if we have more than one premises?
If you have more than one business premises, managing several different energy contracts can rapidly give you a headache. That’s why many of the Big Six and smaller energy suppliers offer what’s known as a multi-site energy contract.
In a nutshell, this type of contract allows you to combine all of your business energy tariffs into one package with one supplier. This means all of your contracts will have the same end-date, making it far more manageable, and you can often save money too, as a bulk purchaser.
What if I work from home?
If you are a sole trader working from home you may be eligible for a business energy deal. You’re even more likely to be eligible if you’re classed as a micro business – which means you’ll need to meet at least one of the following criteria:
- you have fewer than 10 employees and your annual turnover does not exceed €2 million
- you use less than 100,000 kWh of electricity each year
- you use less than 293,000 kWh of gas each year.
Being classed a micro business will also give you greater protection from suppliers than if you were a larger business. For example, your supplier must ensure you fully understand the terms of your contract and it must write to you around 60 days before your contract renewal deadline.
Be aware, however, that if you want to switch to a business energy contract, you will need to prove that you run your business from home and that a large proportion of your energy use (50% or more) is for business purposes.
It’s also worth noting that whether you are on a business or domestic energy tariff, you can claim for the proportion of electricity and gas you use as a business expense. To do this you’ll need to find a way of dividing your costs. One method is to divide the cost of your energy bills between the number of rooms in your home.
According to government figures, if you have four rooms in your home, one of which you only use as an office, and your annual electricity bill is £400, you could claim £100 as allowable expenses (£400 divided by four) via your tax return. This assumes all the rooms in your home use equal amounts of electricity.
If you only worked one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by seven).
Can I switch business energy suppliers?
Yes – but it usually only makes financial sense when your existing business contract is coming to an end as you’ll probably face an exit penalty. But when it does come to an end, it’s important that you switch, otherwise, you’ll be rolled onto an expensive out-of-contract rate.
Your supplier will contact you when your contract enters its ‘renewal window’ which is usually between one and six months before the end date. You should then shop around for both business gas and business electricity and find the best deal.
You’ll need to enter details such as the name of your current energy suppliers and the name of the tariffs you’re on, as well as your supply type and how much energy your business uses in kWh or pounds.
Be aware that, unlike domestic energy, there is no cooling off period with business energy (this is a 14-day period where, as a private consumer, you can cancel your contract without penalty if you change your mind). So, clearly, it’s important to choose your tariff carefully.