Are you wondering about the difference between the energy you use for your business and the energy you use at home? Get all the information you need with the help of our handy guide. Read on to find out more.
The gas and electricity that powers your business is the very same stuff that lights and heats your home, but energy companies treat domestic and business supplies totally differently from the structuring of contracts to comparing business electricity and gas.
While the energy that homes and businesses consume flows through the same pipes and cables, domestic customers are free to move between suppliers and select different tariffs based on market conditions. Businesses on the other hand 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.
There are a number of reasons for that a business owner would be better off having their energy supplied by a commercial energy contract, as opposed to a domestic energy tariff. Below, we take a look at the reasons why:
First and foremost, the way business energy and domestic energy suppliers buy energy is quite different.
Domestic energy suppliers buy their energy a few months in advance for all of their customers, while business energy suppliers buy energy as and when a contract is set up. At that point, the business energy supplier will buy enough energy to last that customer the length of their entire contract - this could be for as little as 1 year up to as much as 3 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.
For more information on how business energy customers are billed, visit our business energy bill guide.
Generally speaking, domestic energy contracts are 'rolling' contracts that don't have definitive end dates. This is the reason why customers can switch to other energy suppliers regularly to secure better prices for themselves. Fixed price/fixed term tariffs do exist for domestic customers, but usually a small cancellation fee will allow them to move away.
In contrast, business energy contracts are almost always fixed for a period of 1, 2 or 3 years, or more rarely, 4 to 5 years, with no option of early cancellation which is why it's important to run a thorough business gas and electricity comparison. This is also why businesses are not immediately affected by gas and electricity price increases, because they are locked in to a fixed-term, fixed-price contract. The wholesale price of energy therefore only becomes significant when your contract comes to and end and needs to be renewed.
Rolling monthly contracts do exist, but the prices charged on these contracts are often significantly higher and we usually recommend they are avoided. However, some larger companies with annual bills of approximately £100,000 or more use 'flexible energy purchasing' to buy their gas and electricity, which means they purchase energy directly from the wholesale market.
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.
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.
The fact that your business energy contracts come to a definitive end means you have to be proactive about setting up a new one. Inertia usually proves costly, because business electricity and business gas suppliers put you on 'rollover' rates that are likely to be significantly higher than the price you were paying before the contract ended. Spending more on energy eats straight into your profit - and with energy representing an average of 10% of businesses' overall cost base, the impact of rolling over could have a serious effect on your bottom line.
Suppliers are not always overly forthcoming about letting businesses know that their contract is coming to an end - and give them only a limited window in which to act. The benefit of contacting Make It Cheaper is that we can put this information in our system and get in contact with you when the right time comes to run a business energy comparison. We're motivated to do this because we want to find you the best deal possible and set up your new contract - even if it means sticking with your current supplier on a fixed-rate tariff.
Make It Cheaper compares business gas tariffs and business electricity prices from across the market to secure the best possible price for your business. Call us now on 0800 970 0077 for your free quote and save up to 30% on your energy bills. Alternatively, you can complete the call-back form on the right hand side of this page.
Our service helps you get on - and stay on - lower, fairer rates for electricity, gas, landline, broadband, merchant services and insurance.
Prefer us to call you? Enter your details in the form on the right.
You complete the form, we call you, good things happen.
We’ve received your request for a phone call and one of our saving experts will be in touch very soon.
Having a recent bill from your current energy supplier to hand when we call will help us process your enquiry quickly and efficiently.
Please note our office hours are 9am to 5.30pm Monday to Friday. We look forward to talking!