The Difference Between Business and Domestic Energy Contracts

17 February 2017

The Difference Between Business and Domestic Energy Contracts

The gas and electricity that powers your home is the same gas and electricity that powers your business. It comes from the same source and travels through the same cables and pipes. Energy companies, however, treat the supply of gas and electricity differently if you’re a business.

Contract Term

One of the main differences is that businesses select a supplier for their energy for a set period of time. This varies but can be for up to four years. You’re charged a set price for this period, and you agree a contract.

Domestic energy contracts are generally rolling, so there is no end date. The supplier continues supplying energy to the customer on their existing tariff until the customer decides to change. There’s often a fixed period when signing up to a new domestic supplier, but once that’s up, the contract starts to roll.

There are also differences in cancellation terms. In a rolling contract situation, domestic customers can switch suppliers whenever they want. They can even switch when in a fixed period, although there’s usually a small fee to do so. Business customers, however, have no option to cancel as they have to stay with their supplier for the duration of the contract.

Finally, domestic customers have a cooling off period when they sign up to a new supplier. Business customers don’t have this, so it’s important you’re sure about the new contract before agreeing to it.

Price

The price of business and domestic energy contracts also varies. One of the reasons for this is the way most energy suppliers purchase gas and electricity on the wholesale market. Energy suppliers buy for all their domestic customers in advance—usually several months in advance.

A lot of business energy suppliers don’t do this. Instead, many purchase gas and electricity for business customers only once a contract is agreed—enough energy to fulfil the entire contract. So if a business agrees to a three-year deal with an energy supplier, that supplier buys enough gas and electricity for the full three-year period.

The VAT you pay on business energy is different to the VAT paid on domestic energy, so this has a significant impact on the price you pay too. Domestic customers pay five percent VAT, while business customers pay 20 percent.

In addition, other levies are applied to business energy contracts, such as the Climate Change Levy.

Finally, in terms of price, you often get cheaper prices for business energy, although the price fluctuates much more. This is because energy supplies buy business gas and electricity daily. It only affects you at contract renewal time of course, but it is important to know that prices can vary from one day to another.

Benefits of Business Energy Contracts

  • The price is fixed, so budgeting is easier.
  • It is less susceptible to price fluctuations as your price is locked in for the duration of the contract period.
  • Deals are often better.
  • Prices are usually lower too as your business probably uses more energy than a typical household.

While business contracts are different, the best advice is to compare business energy prices to ensure you get the best rates.

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