Photo by Rohan Makhecha
If you’re planning to start a small business in the UK, there are a lot of things to take into consideration, a lot of things to do, and certainly a lot of things to learn! The UK is brimming with millions of small business owners, entrepreneurs, and self-employed business owners, but unfortunately, many of these business owners don’t know much about business energy. In fact, 8 out of 10 SMEs are still unknowingly overpaying their business energy bills!
This predicament can be prevented, though. We can start by saying that you must first keep in mind that business energy tariffs and domestic/household tariffs are extremely different from one another.
If you are opting to start a small business in the UK, one of the first important steps to take is to understand how business energy works, which energy supplier to work with, and how to strike the best tariff deals.
We’ve answered frequently asked questions from people who are starting a small business below:
Who are the biggest energy suppliers in the UK?
There are 6 energy suppliers in the UK that are extremely well known in every region, namely – EDF Energy, E.ON, British Gas, npower, SSE, and Scottish Power. Collectively they are called The ‘Big Six’.
Although a lot of small and independent energy providers for both domestic and business clients have been catching up with the Big Six. In fact, there’s been quite a rise in the number of up and coming suppliers in the UK.
Energy suppliers such as:
- Good Energy
- Green Energy UK
- Hudson Energy
- Octopus Energy
- Opus Energy
- Total Gas & Power
- Axis Energy
- Better Energy
- Corona Energy
- Robinhood Energy
- Utility Warehouse
And a whole lot more have emerged in recent years. They play pretty good competition and have supplied thousands of consumers (both domestic and commercial) with electricity and gas. Some of them even focus on using renewable and/or green energy too.
Many of these suppliers often offer cheaper energy tariffs compared to the Big Six! However, we would still recommend running a business energy comparison just to make sure – since prices still vary by region.
Are there different types of ‘tariffs’? If so, what are they and what are their differences?
Yes. There are 4 types of tariffs. But business energy consumers usually choose from 2 main tariffs, specifically a: fixed-term tariff or a variable rate tariff.
Fixed-rate contracts require consumers to pay an agreed rate or fixed price per kWh of energy consumed over an allotted period of time. These contracts typically run at least 1-5 years, depending on the supplier. It is said that the longer the contract term is, the more expensive the tariff. This is because, over time, energy prices in the wholesale market are ever-changing, which means you won’t be able to snag a deal when it’s at its cheapest. Should you wish to cancel your fixed-rate tariff before the agreed end date, you might face expensive exit fees. Some suppliers do not permit their customers to leave their contract before the term ends.
However, it is worth noting that you will be paying the SAME amount within an agreed period of time, which in a way promotes security since you already know how much to pay monthly. On top of that, you may be able to stick to a budget accordingly.
On the other hand, a Variable Tariff Contract gives consumers enough liberty to switch to a different energy supplier whenever they please. Although bear in mind that customers that are on this type of contract will pay flexible rates that will change depending on price fluctuations in the wholesale energy market – unlike those who are on a fixed tariff contract.
Remember, these prices will change depending on market activity during the length of your contract. Generally, this tariff is quite expensive as opposed to the former, and many suppliers recommend small businesses to choose a fixed-rate contract instead. The only upside to variable tariff contracts is that if prices fall steeply, your rates will too.
The third type of tariff is the ‘out-of-contract’ rate. This is for customers that haven’t been able to renew their contract or switch suppliers once their contract ends. This works for both fixed and variable contracts, and they will automatically be rolled over to this type of tariff. It’s quite pricey, so we suggest comparing prices and switching suppliers 30-49 days before your contract ends to prevent costly circumstances.
Lastly, deemed tariffs are also expensive as far as tariffs go. If a business has just moved into new premises and they consume gas and/or electricity in said premises without agreeing or signing a contract with the supplier, they will automatically be put into a deemed contract. This type of contract is usually 25% more expensive than the standard energy rate.
Out-of-contract rates and Deemed Contracts are different, yet many suppliers are still left confused by continuing to refer to one as the other.
Is it true that energy rates vary depending on the time of the day?
In most cases, yes. There are a handful of energy providers that charge a different rate of pence per unit of energy depending on the time of the day: Day, Evening, Night. Additionally, some suppliers also alter their rates accordingly during weekends, which is often referred to as ‘Weekend Rate’.
These prices vary from day to day and by the hour, and oftentimes these prices can fall seasonally (during mild temperatures, etc). By inspecting the energy market, you might be able to determine when electricity is cheaper, and when it’s not.
Generally, the ‘Day’ rate is often the most costly one. The ‘peak hours’ are naturally centred during the day. However, you may consult your supplier regarding the exact hours. This often depends on the plan you’re opting to take, too.
We suggest looking for a tariff that will allow your business to get as much energy it needs at a much lower rate if you’re certain that it will be consuming a lot of energy outside the given peak time.
Am I required to get electricity and gas from the same supplier?
There are no dual fuel energy tariffs available for businesses. A dual fuel energy tariff is where both electricity and gas comes from one energy supplier under one tariff. Domestic consumers have access to this type of tariff.
Although you may still be able to procure electricity and gas from the same company, they will be on different tariffs.
In short, you are free to choose a different supplier for your business gas and electricity.
Is domestic energy more expensive than domestic energy?
The average business energy tariff is much cheaper than that of domestic energy tariffs. On top of that, the larger the firm, the lower the unit rate. Yes, that means small businesses often face expensive rates!
The reason behind this is suppliers are known to obtain commercial energy in bulk. Domestic energy suppliers, on the other hand, buy energy each month.
Additionally, domestic energy consumers only have to pay 5% VAT on top of their invoice, while businesses pay 20% VAT, on top of the Climate Change Levy (CCL) which was first introduced in April 2001. The CCL is an environmental tax that aims to encourage businesses to become more energy-efficient and reduce carbon emissions.
However, businesses that are in the industrial, agricultural, commercial, and public service sectors are eligible to join the CCL scheme.
On the other hand, nonprofit organisations and charities, businesses that use less than 33 kWh of electricity a day (on average) and an average of less than 145 kWh of gas per day, do not have to pay the CCL.
What type of meter should I have installed?
It is mandatory for large firms—such as warehouses, factories, and big companies—that consume at least 100kW or more every 30 minutes to have a half-hourly (HH) meter installed, which is a type of meter that sends your data straight to your supplier on a half-hourly basis.
On the contrary, a business can have a half-hourly meter installed whenever they please if they use at least 70kW or more every 30 minutes.
If your business falls under the latter and you are not required by the law to get a half-hourly meter, why not consider getting a smart meter instead? Business and domestic energy consumers that are on a tight budget rely on smart meters to help them monitor their usage and determine when they consume energy the most. Smart meters ensure accurate billing since it sends regular readings to your supplier (so you don’t have to).
The UK government aims to replace standard meters with smart meters, hence most UK businesses and households have been offered a smart meter during the past months. It is expected that by the end of June 2025, all consumers have been offered a (and hopefully swapped to) smart metres.
Are there different payment methods for business energy? If so, which one is the best?
The most ideal, easiest, quickest, and even the cheapest way to pay business utility bills in the UK is by monthly direct debit. As a matter of fact, many energy suppliers offer discounts from up to 7% off their bill to consumers that use this type of payment method. You also have the choice to pay upon receiving your energy bill, quarterly direct debit, bank transfer, or by cheque.
Try asking energy suppliers about discounts or special deals that can be based on your preferred energy bill payment method – you might be able to strike an awesome deal just by doing so.
Bear in mind that a lot of commercial consumers fail to check if they are paying the correct amount – this leads to them overpaying their utilities or in common cases, underpaying – which can both lead to some complications.
Surprisingly, 7 out of 10 SMEs in the UK are overpaying their energy bills, so make it a habit to monitor your consumption, understand what’s written on your invoice so you may catch errors that could lead to problems, and talk to your supplier if you’re looking to make adjustments to your payment methods.
I have more than one business premises. Do I need a different tariff for every each one of them?
Not really! There are multi-site energy contracts offered by multiple UK energy suppliers. With this type of contract, business owners and entrepreneurs can combine all their contracts in one package with a single supplier. Meaning, the contracts that their business premises are on all have the same end-date.
This is much more manageable, and it lessens the stress that comes with managing multiple contracts all at once. Additionally, you might be able to save more money, since you are purchasing energy from the supplier in bulk.
Am I allowed to switch to a different energy provider?
Of course! Anyone is allowed to switch to a different energy provider. However, it will be a smart move to make the switch when 1.) your current contract is about to end and it has entered its ‘renewal window’, 2.) you’ve informed your current supplier about your plans to switch, and 3.) you’ve compared business energy quotes and shopped around to find the best deals in the market and your area.
Wishing to terminate your contract way too early can lead to ridiculous exit fees. Additionally, if you don’t renew your contract or switch to a different provider as soon as your contract ends, you will automatically be rolled onto an overpriced out-of-contract rate.
If you’re worried about not knowing when the ‘renewal window’ of your contract begins, energy suppliers typically contact their clients to inform them about it beforehand.
Important details such as your current energy supplier/s, the type of tariffs your business is currently on, your postal code, and an accurate number of how much electricity/gas your businesses consume are important for when you want to switch suppliers or collect quotes.
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