Christian M. 5 min read

Domestic vs Business energy: What’s the difference?

Are you confused about the difference between domestic and business energy tariffs? The electricity used by commercial properties and homes is exactly the same; however, our guide is here to give you the key differences between commercial and domestic energy.

Jump to the key differences:

Contract Term
Cooling-off-period
VAT and other levies
Termination
Energy quotes
Contract objections
Price cap
Demand and capacity charges

Domestic vs. Business energy

The difference between domestic and business energy may seem obvious: one tariff is for electricity and gas supplied to homes, while the other is for commercial properties. However, the distinction is important with big differences in the prices and consumer rights in each type of energy tariff.

Let’s start with the precise definition of each type of energy supply tariff:

What is domestic energy?

Domestic energy is the term used for a contract specifically designed for energy supplied to a private dwelling solely used for domestic purposes. This could be a flat, house or any premise used for permanent living.

A home energy contract is between an energy supplier and a person living at the domestic property using the supplied electricity and gas.

What is business energy?

Business energy is the term used for electricity and or gas supply to any property that isn’t domestic, according to the definition above. This includes commercial properties, schools, hospitals, charities, churches, and other non-domestic properties.

These days, many people work from home, blurring the distinction between the two types of property. The assumption is that homes use a domestic energy tariff even if you regularly work from your living room. If your heart is set on a business energy tariff, a supplier typically requires that over 50% of the property’s energy consumption be used commercially.

Sometimes, the classification between domestic and non-domestic is not entirely clear-cut. For this Ofgem, the regulator published this detailed guidance for energy suppliers.

Why are they priced differently?

Business energy contracts are typically longer with higher consumption, allowing businesses to access more favourable pricing per kWh of energy. However, that’s the only real upside on business energy pricing. A business energy tariff may include the following additional costs not incurred on a domestic energy tariff:

VAT at the standard rate
Climate change levy charges
Maximum demand charges
Half-hourly meter rental charges

Additionally, Ofgem limits supplier profits on domestic users to keep prices fair with their energy price cap. In contrast, no equivalent business energy price cap protects commercial customers.

Is business energy more expensive than domestic?

On the surface, business energy can look cheaper than domestic energy as the unit rates are usually cheaper, taking into account the higher energy usage. But in reality, the additional factors above that make up a business energy contract can make the overall cost more expensive than a domestic tariff.

Fixed one-year small business energy prices are typically similar to an equivalent one-year home energy tariff. However, out-of-contract business energy rates are significantly more expensive than a standard variable home energy tariff due to Ofgem’s price cap.

What is the difference between domestic and business energy contracts?

Here’s our summary of the eight key differences between domestic and business energy contracts:

Contract Term

With business energy, you can choose the length of the contract. Usually, this is between 1-3 years; some business energy suppliers even offer up to a 5-year contract. This means that a business can lock into a fixed-rate contract for a longer period and benefit from the security of lower energy rates for a longer period.

Home consumers usually can only take advantage of 1-year contracts, which means that if there are significant price increases in the future, a new contract will need to be accepted at these higher rates.

Cooling-off period

A business energy contract has no cooling-off period, so once you have signed your contract, you cannot change your mind; thoroughly review the agreement before you sign to ensure you are getting the best deal.

Home energy contracts have a 14-day cooling-off period, which means you have the right to cancel after 14 days.

See more in our in-depth article on cooling-off periods.

VAT and other levies

VAT on a business energy contract is charged at 20% on top of your business electricity rates and business gas prices.

In contrast, VAT on a domestic energy contract is levied at a reduced rate of 5%.

Business energy also has a climate change levy (CCL) applied to your rates or billed separately, unique to business energy customers. This CCL is currently set at 0.00775p per kWh for electricity and 0.000672p per kWh for gas.

Termination

Business energy customers do not have the option to terminate their contract early without large penalties. The penalties are usually the total cost of the energy purchased for the remainder of the tariff, so terminating is not viable. Here’s our full article on cancelling a business energy contract.

Domestic energy customers on a fixed tariff contract can switch if they have 49 days or less left. If you have 50 days or more left on your contract, you might have to pay an exit fee to leave your contract early. The exit clauses vary between domestic energy suppliers, so it’s worth checking with your customer services department.

Energy quotes

The domestic energy market can use online switching services to instantly switch online, making it quick and easy to change suppliers and get the best deal.

Business energy customers don’t have the luxury of instantly switching online due to constant changes in the market and the complex needs from business to business. Although companies will let you request prices via their website, you won’t see instant results. Instead, you’ll be contacted via telephone or email to discuss your business’s needs in depth before being provided with your business energy quotes.

For further reading on the switching process, here’s our in-depth guides:

Contract Objections

A domestic energy supplier will not object to transferring your supply to another supplier unless you have an excessive debt on your account, making it easier to switch when you want to.

A business energy supplier will object to your supply leaving them for a lot of reasons, including:

If you are in debt of any amount
If you are already in contract and the new start date is before the contract ended date.
The contract stipulates any other reasonable requirement before you can leave.

Price cap

The domestic electricity market is protected by Ofgem’s energy price cap.

The price cap limits how much domestic electricity suppliers can charge on their out-of-contract deemed rates. The price cap is designed to protect consumers who don’t regularly fix their energy prices. No such protection is afforded to businesses. Business electricity suppliers can (and do) charge twice as much for their standard variable contracts.

This is the main reason why it’s essential for businesses to regularly compare business electricity rates to benefit from cheaper fixed electricity rates.

Here’s our full guide to the implications of not having a business energy price cap.

Demand and capacity charges

Commercial properties that use a lot of electricity have half-hourly meters which record business energy consumption every half an hour.

These businesses then get charged a maximum demand charge based upon the highest amount of planned electricity consumed in any given half-hourly period.

The additional charge is to compensate the electricity distribution network operators for the cost of committing to meet this demand at any time. Businesses will incur a further excess capacity charge if they exceed the agreed maximum demand on their business energy tariff.

In contrast, the average domestic energy usage is small and predictable, so suppliers don’t apply any demand-related charges.

How does comparing business energy differ from comparing domestic energy?

Online comparison sites

With domestic energy, you can use our energy comparison services to compare and switch online instantly. Online comparison services will provide live quotes and the option to sign up there and then to your chosen supplier. Signing up for dual-fuel quotes covering electricity and gas to your home is also possible.

With Business Energy, you can request quotes via companies’ websites, but you will not receive live quotes. You will be contacted soon after putting your request in so that you can give more detailed information regarding your specific business needs and then will be provided quotes.

Online – direct with supplier

You can directly compare business energy and compare business gas on a supplier’s website. You will get instant quotes for your premises for home energy, and you can switch there and then.

You can only get an instant quote and switch options for business energy if you are a smaller energy user. If your business uses over 100,000 kWh per year, you will need to speak to one of their specialist team and discuss in more detail your business requirements. Find out more in our guide on energy for large businesses.

Business energy brokers

Many companies use business energy brokers to help them navigate the confusing array of business electricity suppliers and find the best deal.

Unlike home energy comparison, where you can benefit from a simple online switch, helping businesses switch tariffs is more onerous. To cover the cost of helping businesses through this process, brokers will earn a commission typically added as a fee per kWh to your electricity supply contract.

Find out more in our detailed guide to business energy brokers.