What are deemed contracts and tariff rates?

What is a deemed contract?

A deemed contract is put in place when you use energy without having negotiated a deal with your supplier. Deemed tariffs are not export tariffs, which are the rates paid for energy you export from your premises, such as through solar panels.

Deemed contracts usually happen when:

• You move into new premises and start using energy before agreeing on a contract
• Your previous energy contract ended without specifying what would happen after it expired, and you haven’t agreed on a new one while continuing to use energy from the same supplier.

Deemed contracts are rolling contracts that last 28 days, meaning that without switching, your payments could increase each month. The good news is that you can cancel and switch to a fixed contract at any time.

Prices are set by individual suppliers, which means some will charge more than others. But deemed rates are usually among the most expensive, so it makes sense to get off them as soon as possible.

If you’ve moved in and don’t know your supplier

One of the most common reasons for being on a deemed contract is when a business moves into new premises without knowing who currently supplies energy to the property. By default, you’ll be placed on the current supplier’s deemed tariff until you make contact. Here’s what you need to do:

• Locate the premise’s gas and /or electric meters, then take opening meter reads (along with date/time-stamped photos as evidence)
• Identify the current supplier - speak to your new landlord or agent to see if they know (and to confirm how many meters are on the property to ensure you don’t miss any)
• Make sure you keep a record of key events such as the date you moved into the property, along with any evidence (such as date and timestamped photos of meter readings) while you sort things out.

Are there any Ofgem regulations in place?

Yes, the energy regulator Ofgem has measures that limit the amount suppliers can charge, so customers aren’t overcharged. However, they’re vague and don’t prevent suppliers from charging higher rates than those offered on fixed-rate details.

Ofgem does, however, say that suppliers must both make the terms of the deemed tariff rate easy to understand and inform you of other available deals. Despite some apathy about switching, particularly among small and microbusiness owners, evidence suggests that businesses are more open to switching than they used to be - in 2022, Ofgem reported that 23% of microbusinesses (0-9 employees) had never switched supplier, compared to 13% of small businesses with ten to 49 employees. By 2024, those figures had fallen to 10% and 5% respectively.

But what does this mean in practice?

• You’re not locked into a deemed contract long-term by default
• In most circumstances, you can switch without paying any fees or providing any notice
• You should be able to compare deals and move on to a better contract.

However, your switch may be blocked or delayed if:

• You’re not actually on a deemed contract - for example, you got the end date of your fixed-rate contract wrong, and the contract is still in effect
• There’s an outstanding debt to pay
• You’ve moved into new premises, but the supplier hasn’t agreed that the change of occupier has happened
• You’ve supplied incorrect information - for example, site or meter details 
• The supplier has gone bust, but the account hasn’t yet been transferred to a new supplier
• Your tenancy agreement may have a clause requiring you to switch back to the original supplier at the end of your tenancy, which may complicate or delay the process.

Should you find yourself blocked from switching for reasons you don’t think are fair (for example, an incorrect or backdated bill), then start by speaking to your supplier to try to resolve the problem. If this fails, ask what its formal complaints process is - you will need to follow this and give it eight weeks to provide a resolution or offer a final response before you can escalate this to the Energy Ombudsman, which may or may not be able to intervene on your behalf.

Backdated bills and late billing: what to check first 

If you receive an unexpectedly high backdated bill, perform the following checks before paying it:

• Confirm the dates that the bill covers and find out why it’s being issued now
• Ask for a full breakdown that shows how the various charges - unit rates, standing charges, meter readings used - were calculated
• Check the meter readings on the bill are accurate - particularly if you’ve just moved into the new premises
• If necessary, gather evidence to back up your claims, such as tenancy dates, your opening meter readings (including dated photos) and any previous correspondence with the supplier
• If the supplier is unable to clearly explain why you’ve been charged this amount, and you’re unable to resolve the problem, find out what their formal process is for filing a complaint.

Why are deemed contracts more expensive?

There are several reasons why deemed contracts cost more than fixed rates, including:

• They’re usually only used short-term - for example, when moving into a new property where you inherit the existing supplier by default
• Most businesses on deemed contracts haven’t shared much information about their business type and energy consumption - such as how much energy they consume, and at what times of day that energy is used 
• If your business has a poor credit score, this may also affect the rates you’re offered.

All these factors increase the supplier's risk, so it will always seek to protect itself by charging more. Although provisions are in place to make sure businesses on deemed rates aren't unfairly charged, the onus is always on you, as the business owner, to make sure you're on the best possible rates. If you're unsure about how much you should be paying for gas and electricity, check out our guide to business energy usage and rates.

How to check your deemed rates are correct

There are several ways you can verify - and maybe even improve - your deemed energy rates:

• Check your supplier has the correct information about your business details and usage profile - including whether your usage is estimated or based on actual meter readings
• Verify your meter type
• When checking your bill, make sure you check both the standing charge and unit rates, plus consider add-ons like VAT and Climate Change Levy.

What alternatives are there to deemed tariffs?

Even though deemed rate contracts are some of the most expensive energy tariffs, you’ll still want to ensure you are switching to the best deal, not just a slightly more favourable one. As all businesses are different, what is suitable for one may not be for another.

Our experts will talk you through the following contracts in more detail, but it’s worth knowing from the start what to expect. And it’s most important that you either avoid deemed rates altogether or switch as soon as you realise you are overpaying.

• Fixed rate tariffs - the most stable and dependable contract, a fixed rate contract means you’ll know exactly how much you’ll pay for each kWh of energy you use. Of course, your electricity and gas bills will vary depending on how much you use, but they’re the best contracts for budgeting purposes
• Variable rate tariffs - as the name suggests, these contracts involve prices that fluctuate with every kWh of energy you use. The price is determined by the current energy market, including the wholesale price of energy. When the market is favourable, you’ll pay less. But when it isn’t, you’ll pay more
• Out-of-contract rates - If you let a fixed deal expire without arranging a new one, your supplier will place you on its out-of-contract rates. These are often more expensive than the rates you're offered on a fixed tariff, but you can switch at any time by giving just 28 days' notice
• Rollover contracts - similar to a deemed rate contract, except they last for one whole year. You’ll want to stay away from both rollover and deemed-rate contracts, as they carry much higher prices than fixed or variable tariffs.