When do you qualify for business energy rather than domestic?

While the energy that homes and businesses consume flows through the same pipes and cables, the fact is that there’s a difference in the terms on which suppliers provide their domestic and non-domestic customers with power.

Where domestic customers are free to move between suppliers and select different tariffs based on market conditions, businesses are best off having their energy supplied on a contractual basis. This means businesses agree to have one company providing their gas or electricity at a set price for a set period of time – usually between one and four years.

Energy Meters

You can often tell if a building is having its power supplied as a household or business based on its meter type. Meters that read 01 and 02 are intended for domestic properties whereas the commercial market profiles start with 03 and 04, which are smaller business consumers. Meters that start with 05 and 08 profiles are for larger business consumers.

Purchasing practices

The energy bought by suppliers to provide homes and businesses is purchased in different ways. For the domestic market, suppliers buy the energy a few months in advance in order to ensure they have enough to support their consumers’ needs. Things are different for businesses – at the beginning of a contract, the provider will purchase all the energy that a customer is expected to use throughout the length of their contract – that is, anywhere between one year and four years in advance. Commercial energy tariffs often allow business owners to purchase electricity at a cheaper rate compared to domestic users, owing to the fact that they’re likely to be consuming more energy.

However, businesses do pay a higher rate of VAT on their bills – 20%, rather than the 5% that’s applied to domestic customers. Taking these different charges and factors into consideration, business energy rates can vary quite substantially to domestic rates.

Switching

Households will either be on a rolling deal with no definitive end date, or a fixed-price tariff which is essentially a product that’s available to all domestic users. When this fixed-price tariff expires, it will do so for all customers who've signed up to it - regardless of when they did so – and in most cases they’re free to switch at any time (or for a small cancellation fee).  

In contrast, business deals are nearly always fixed for anywhere between one or four years, and the contracts cannot be cancelled early (unless the business vacates the premises at which its energy is being supplied).

Energy suppliers attribute the reason for this difference in pricing to the way businesses work – they argue that it’s difficult to predict how much commercial users will consume in a year, while it’s much easier to predict domestic use. They also know when domestic users will use most of their energy and at which time of the year, but it’s much more difficult to predict energy use for businesses. Read more about business energy switching here

Businesses operating from home

If you run your business from home and intend to switch to a business tariff, the foremost requirement is that you need to use a significant proportion of the energy in your home for business purposes. Most suppliers agree on a 50% usage as a suitable threshold. If you’re working from home all day, with lights, heating, computer and all the other office equipment, this benchmark is easily attainable.

You can check the usage details by taking meter readings at the start and end of the working day for a few days and calculating the split between energy used while you’re working and while you’re not.

Another important factor is that you will need to be registered as a business - or to have other proof that your business exists. The energy supplier may require you to demonstrate that you have a business and are operating from your home.

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