Business energy rates vs. household energy rates

Why your business quote might look cheaper than a home quote

If you’ve been used to paying only for domestic energy, you might be taken aback when you start receiving quotes for your business’s energy tariffs. At first glance, your business quote might look cheaper than the energy you’re paying at home, but headline figures can often be misleading.

It's important you don’t just focus on the unit rate - these are usually lower for businesses because business energy is paid for well in advance of domestic energy through the security of longer-term contracts, which allows suppliers to offer more attractive fixed rates.

However, there are other costs associated with business gas and electricity tariffs that you need to consider, including:

• Check the unit cost is what you agreed, and that it’s fixed for the full term 
• Compare the daily standing charge against what you’re currently paying and make sure it’s appropriate for your business size (smaller businesses should pay less). Make sure this covers all third-party charges, such as network costs
• Check the quote includes the right VAT, as most businesses are subject to a higher rate of VAT (20%) than domestic customers (5%). There are some exceptions, but check the quote includes VAT and has the correct rate applied
• Make sure the Climate Change Levy (CCL) is included
• Make sure broker fees are clearly labelled, as they will also add to the overall cost.

Once you’ve confirmed that the quote has factored in all the above costs, check for the following before you sign off on any contract:

• Site details: check your business address is correctly recorded along with the meter type (whether it’s a single-rate, dual-rate or 3-rate meter), 
• Verify the legal parties involved: make sure the supplier’s name and address match the registered company on offer
• Check the contract details: is it fixed, flexible or variable - how are the rates set, and can they be changed if it’s a fixed-term contract? Also, check the contract length (including start and end dates), as well as any notice period and termination clauses. Compare this to your lease or tenancy dates - what happens if you move premises mid-contract?
• The basis of the quote: Is it based on estimated usage, your previous usage or the previous occupier’s usage? Your own historic usage is usually the most accurate
• Changing premises use: If you’re switching from home to business use, let the supplier know as early as possible. This may affect the amount of VAT (20% rather than 5%) you’ll have to pay.

How does comparing business energy differ from comparing domestic energy?

There are several differences between comparing business gas and electricity tariffs and looking for domestic deals, including:

• Signing contracts: business energy contracts cannot be entered into online because each contract is usually tailored to your business based on information you provide.
• Comparing deals: for much the same reason, there’s no convenient online portal for business deals; instead, you must either use an energy broker or contact each supplier directly with relevant details such as usage, industry, location and number of sites or meters.
• Longer contracts: because you can sign a contract for up to five years, you can often take advantage of discounted energy rates; however, note that you’ll usually be tied into the full contract length with no cooling-off period or early termination clauses.

How to compare business vs. domestic energy costs

Whether you contact business energy suppliers directly or make use of a broker to seek out deals on your behalf, here’s what you need to do to make meaningful comparisons when looking at business energy vs. household energy quotes:

1. Gather the right info: make sure you have everything a supplier may require, including your last bill, current contract end date (if applicable), your gas and/or electric usage (in kWh), meter type(s) and business location or MPAN and MPRN numbers.
2. Compare the full cost: check each quote includes everything, including the unit rate, daily standing charge and any other applicable fees (such as VAT and Climate Change Levy).
3. Check the contract: verify each contract’s length and whether there’s a rollover component, plus any notice windows and termination fees that may be applicable.

Also, make sure that each quote includes all the details you gave the supplier. Things that might lead to skewed quotes include:

• Comparing fixed-rate quotes in contracts of different lengths
• Focusing on only part of the quote, such as the unit charges
• Relying on an estimated usage figure or using the previous occupier’s usage, which may be significantly different to yours
• Failing to consider criteria such as meter type, multiple meter setups and possibly mixed use if deciding to run a business from home

How to reclassify between domestic and commercial energy rates

If your home or business premises are on the wrong tariff type because of changes to your business or after moving into new premises, you’ll obviously want to rectify the situation to avoid overpaying for your energy or falling foul of business regulations.

To avoid potential problems with your tariff being reclassified, follow this pathway:

1. Start by contacting your supplier - this is your first port of call for any requests and is required to reclassify your premises’ MPAN (electric) and MPRN (gas) numbers to reflect the change between domestic and business tariffs.
2. Make sure you have the evidence you’ll need to hand to back up the actual use of the property and when that changed.
3. Your energy supplier should review your documents within 10 working days and then either switch you to a new account, reject the proposed change with a reason why, or ask you to provide further evidence (and what that evidence should be).
4. If you disagree with the supplier’s decision or feel its demand for extra information or evidence is unreasonable, you can escalate your case by either contacting the Energy Ombudsman or asking Citizens Advice for help.

How to switch business energy supplier

Switching business gas and/or electricity supplier is slightly more complicated than changing your household energy contract.

You can only switch once your existing contract ends, so you must wait until the ‘contract renewal window’ opens - typically three to six months before the end of your current contract - before starting to look for a new deal or business energy supplier.

If you’re in this window, you can start to look for a new deal. Here’s what to consider depending on your business size or type:

Single-site small or microbusiness

• Check your current contract end date - if your contract has already expired and you’re on a deemed, variable or rollover rate, move quickly to avoid paying over the odds for your energy
• Compare the full cost of any quote you get, not just the headline rate
• Choose your new supplier and let it handle the switch.

Mixed-use home and business

• If you run your business from home, it’s likely you won’t need a business tariff - check your current tariff and discuss with your supplier
• If your property is mixed-use - for example, a farmhouse, shop with living space or home workshop - verify with your supplier how the account is classified before switching to ensure you don’t end up on the wrong tariff type or VAT treatment.

Multiple meters and/or sites

• If you have more than one meter or site, treat switching as a portfolio exercise and look for multi-site business energy deals that cover switching, renewals, bills and account management across all your meters and sites
• Gather meter details across each site
• If moving in or out of any site, make sure you take meter readings the day you enter or leave to avoid being billed for energy you haven’t used
• Look for deals that support consolidated building or aligned renewals for more accurate comparisons and to reduce the risk of a site or meter being missed.

EV charging or higher usage

• If your costs swing because of factors such as EV charging, refrigeration, machinery or other peak-time demands, don’t simply compare flat unit rates - consider whether time-of-use, half-hourly or some other flexible tariff might not suit your energy needs better
• Look to align your usage to maximise savings.