A lot of people already know how Domestic Energy works, but what many don’t know is that there are a lot of key differences between Business Energy and Domestic Energy that should be taken into consideration.
If you are someone who is currently running a business of whatever size, you are probably aware that keeping your costs in check is something that should not be thrown in the backburner.
So, whether your business is currently based at home, or you’re running a small restaurant in the heart of the city – you might want to consider switching energy suppliers or contracts that can properly meet your needs and maximise your income.
This entire article will properly explain to you the key differences between Business and Domestic Energy, including how they’re priced, which one is technically cheaper, and even what type of tariff you should go for if you’re working from home.
Is Business Energy cheaper than Domestic Energy?
Surprisingly enough, businesses pay less when it comes to the average unit rates in the UK. Larger businesses tend to get much lower unit rates due to higher volumes and economies of scale. Most energy suppliers purchase energy for the commercial sector in bulk, while domestic energy is purchased every month, or several months in advance.
However, the answer to the simple question “Is Business Energy Cheaper?” is quite more complex than you think. As we said, there are many key differences between the two tariffs and a lot of simple actions, habits, and choices that can instantaneously affect the price of energy you pay annually.
For example, many business owners have been finding themselves on ‘rollover’ contracts, which are known to be one of the most expensive energy contracts to be on. There are many ways to avoid this type of contract, but the biggest action that can significantly make any situation better is switching to a different supplier or contract so you won’t end up overpaying.
Technically speaking, the gas and electricity that are currently being supplied to domestic and business consumers all come from the same sources and travel via the same cables. However, energy for both consumers operates differently.
Value-added tax and levies such as Climate Change Levy can increase costs.
In terms of VAT, domestic energy consumers only pay 5%. While businesses, on the other hand, typically pay up to 20% VAT on their energy. In addition to that, most businesses are also required to pay the Climate Change Levy (CCL) which is at a rate of 0.541p per kWh for electricity and 0.188p per kWh for gas. These rates will be changing on the 1st of April 2021.
It’s quite inevitable that these extra charges (VAT and CCL) will hike up the costs of business energy, which gives domestic consumers an advantage. That being said, when looking for business energy tariffs – always make sure that you are not taking unit rates at face value.
VAT and CCL, however, still come with a couple of exceptions that might make a significant difference on your energy bill:
- If you are using renewable energy, you are not required to pay CCL.
- If you are using less than 33 kWh of electricity and 145 kWh of gas a day (which is an annual rate of 12,045 kWh of electricity and 52,925 kWh of gas), you do not have to pay CCL, and you will only be paying 5% VAT.
- If you are running a B&B, a care facility/home, or a campsite, you are also not required to pay CCL. On top of that, you will only be paying a 5% VAT.
Generally, business energy is usually cheaper as opposed to domestic energy. However, price fluctuations happen more often for the former, but it will only affect business energy customers at contract renewal time.
Still, keep in mind that whether it’s domestic or business energy – prices will always vary.
It’s important to understand the nuances of energy supply and contracts – once you have a clear understanding of it, you will be able to score the best energy deal for your business – whatever sector you fall under. Business energy comparison tools such as ours will help make the entire process of searching and comparing extremely easier than doing it by yourself.
Are there any benefits to Business Energy Contracts?
Yes, of course!
One thing about being on a business energy contract is that you get a fixed price throughout your contract – this is good because it will make budgeting a whole lot easier. On top of that, since your prices will be fixed, you won’t be facing price fluctuations.
Businesses typically use more energy than most households, so energy prices are usually lower and deals are often better. (If you start practising quotes comparison and learning the importance of switching suppliers/contracts when needed).
Business Energy has better Contract Terms
Contract terms are pretty much one of the main differences between business and domestic energy. There are contracts called ‘Fixed-price Contract’ that can last up to four years. In those four years, you are obligated to pay a fixed price of pence per kWh.
Contracts for Domestic Energy pretty much have no end date at all – which is identified as “rolling”. Meaning, an energy supplier will provide energy to their respective customers continuously until the customer decides to make any changes.
…But Domestic Energy has better Cancellation Terms
The downside of business energy contracts is that cancellation terms can be pretty strict. If a customer is on a business energy contract – they do not have the option to drop the contract and cancel anytime they want. They are obliged to stay with the supplier until their contract expires, or until they reach their “window period”.
Domestic consumers, on the other hand, are free to switch suppliers whenever they please (this is for consumers that are on a rolling contract). Domestic consumers also have a period where they can sign up to a different supplier. This period is generally addressed as the ‘Cooling Off Period’ – this is one thing that business energy consumers do not have.
Am I eligible for Business Energy even if I work from home?
If you’re looking to switch from domestic energy to business energy, you must first prove (to the supplier) that your business is consuming a significant amount of your energy, even if it is home-based. This amount should be at least 50% of your energy or even more.
Business equipment can include: lightning, heating, computers, and other devices that are mainly specified for business use.
Finding the right business energy deal is key to saving more money and consuming electricity and gas at ease. We can help you compare business energy quotes and find the best deals available in your area. Take our free assessment tool above to get started! It will only take less than a minute.