Business energy tariffs aren’t quite the same as domestic energy tariffs and if you’re a business owner, it’s absolutely crucial that you know the key differences between the two.
Contract lengths for domestic and business customers can be very different. Ordinarily, domestic energy contracts last 12 or 24 months and are offered on a rolling basis, which means that if you relocate you can stay on your contract by taking it with you, or you can switch to a new contract.
Business contracts, on the other hand, are usually much longer, running 36 months or more, sometimes up to five years. These contracts are also much harder to cancel. If you are wanting to cancel a business energy contract early, you will likely face high fees from the energy provider.
While household contracts typically allow customers to roll over month to month once the initial contract period has ended, businesses have to be careful to renew or switch contracts. Otherwise, they will end up paying very expensive Out-of-Contract rates.
Energy providers purchase gas and electricity wholesale, and in advance of their customers’ needs. Months ahead of time, providers buy energy for all of their domestic customers. However, for businesses, the providers will wait until a contract is agreed upon and then purchase energy for the duration of the contract, which explains why it is harder to leave a business contract.
Energy prices fluctuate greatly on a daily basis, which will lead the most business to opt for a fixed rate energy contract in order to budget more precisely for the years ahead. Price fluctuation does create difficulties because projected tariffs for businesses will quickly expire as soon as prices increase or decrease.
Businesses also pay less for the price per unit of gas and electricity because suppliers sell energy to them in much higher volumes. Another benefit for business contracts is that rates can be designed to suit their specific energy needs. However, a downside to this is that it makes comparing rates a lot trickier for businesses because they have to contact each energy supplier separately and receive a tailored quote. While there are brokers who can make this process more efficient for the business, it still requires more time and effort.
When it comes to VAT, businesses must pay 20% VAT on their energy tariffs in addition to the Climate Change Levy, which is charged at £0.47p/kWh for electricity and 0.164p/gas. Domestic customers only pay 5% VAT.
Cooling off period
Domestic energy customers are given a cooling off period which allows customers to cancel their contract if they aren’t happy with the service or find a different deal to sign with instead. However, this isn’t an option for business energy customers who commit completely when they enter into the contract. This difference here is because businesses are “considered to be completely capable of understanding what they have agreed to”, whereas there are protections and regulations in place for domestic customers.
When it comes to domestic and businesses energy, both types of customers need to compare energy deals and providers in order to find the best contracts currently available on the market.
So what does that mean?
Essentially, business customers pay less for their gas and electricity not only because they buy their energy in bulk from providers, but they also have the ability to negotiate for lower tariffs. The fact that business contracts last up to five years also means they are less vulnerable to price fluctuations. On the other hand, domestic customers pay 15% less tax on their energy and don’t have to pay the Climate Change Levy, which means significant savings.