The difference between business and domestic energy contracts comes down to contract terms, pricing structure, VAT and regulatory protections.
Business gas and electricity costs
The livelihood of your business relies on its supply of energy. That doesn’t mean you be paying over the odds for your business electricity. The easiest way a business can cut their costs is by a suitable tariff based on their usage.
It’s difficult to know what your business should be spending on electricity. Many companies overspend because they are on the wrong tariff or haven’t switched supplier in a long time. Comparing business electricity and gas prices will free up cash that could be spent in other areas of the business.
If you run a business, you need to keep costs in check. Especially if you are a business that has recently suffered with poor or bad credit. But do you know how much you’re paying for your energy supply? If it’s been a while since you checked your business gas and electricity contracts, you might be able to save money by switching. But remember, businesses are tied into energy contracts. This means they can’t cancel during the term of their contract, unless the business goes bankrupt or moves business address.
The biggest reason for switching is to get a better deal, but businesses often find themselves on ‘rollover’ or ‘evergreen’ contracts. These continuously renew without checking that the deal is still right for the company. This can make life easy, but as your supplier is not obligated to renew at their best rates, your bill can creep up.
- If you have not switched your business energy supplier for a few years, or if you have never switched at all, you are more likely to have been rolled over to a more expensive tariff. This can leave you significantly overpaying.
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 differently if you are a business.
You can switch your business gas and electricity supplier to get a better deal and save money. With energy costs one of the biggest outgoings for a business, it makes sense to know your options and keep comparing to check the latest business electricity deals.
Our guide answers the key questions you might have about business gas and electricity and how to compare and switch suppliers.
What is domestic energy?
Domestic energy is the gas and electricity supplied to private homes and other residential properties. Domestic contracts are typically set up between the supplier and the person living at the property who pays the bills.
What is business energy?
Business energy refers to gas and electricity supplied to non-domestic properties such as shops, offices, restaurants, schools and other commercial premises. Contracts are usually agreed in the business name and are set up to reflect how that business uses energy.
Understanding the difference between business and domestic energy contracts helps prevent costly mistakes at renewal time.
Contract term and cancellation
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 are 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 is often a fixed period when signing up to a new domestic supplier, but once that is up, the contract becomes rolling.
- 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 is usually a small fee to do so.
Business customers, however, have no option to cancel and 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 do not have this, so it is important you are sure about the new contract before agreeing to it.
Business gas and electricity pricing
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.
Many business energy suppliers purchase gas and electricity 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. 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, you can often get cheaper unit prices for business energy, although pricing fluctuates more. This is because energy suppliers buy business gas and electricity closer to the point of contract agreement. It only affects you at renewal time, but prices can vary from one day to another.
Energy price cap
Domestic energy prices are affected by the energy price cap. There is no price cap for business energy, so business rates can change with the market.
When reviewing the difference between business and domestic energy contracts, it’s important to consider VAT, contract length and the absence of a price cap.
Benefits of business energy contracts
- The price is fixed, so budgeting is easier.
- It is less susceptible to price fluctuations as your rate is locked in for the duration of the contract period.
- Deals are often structured around business usage.
- Prices are usually lower per unit as businesses typically use more energy than a household.
While business contracts are different, the best advice is to compare business energy prices to ensure you get the best rates.
Switching energy suppliers
If you have decided to switch, you should tell the company that already supplies your energy as soon as possible.
Make sure you give as much notice as you need to. If you do not, you might have to pay a fee to switch.
Tell them when you want them to stop supplying and the new supplier to take over.
After you have done this, agree your contract with the new supplier and confirm when they will take over supplying you with energy.
It is important to take accurate meter readings on the day you switch and send them to both companies so you pay the right amount.
Working from home
If you work from home, you may still keep your domestic energy contract for your day-to-day supply. In some cases, you may be able to take out a business energy contract for a home-working setup, but this can depend on how the energy is used.
Contact us today and find how much you could save!
