Domestic vs Business energy: What’s the difference?
Are you confused about the difference between domestic and business energy tariffs? Our guide is here to give you a low down on all the important differences between the two.
- Domestic vs. Business energy
- What is the difference between domestic and business energy contracts?
- How does comparing business energy differ from comparing domestic energy?
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 price 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 to operate your business.
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
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 electricity prices are typically similarly priced 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?
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.
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.
In contrast, VAT on a domestic energy contract is levied at a reduced rate of 5%.
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 on their contract. 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.
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 to instantly switch 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:
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.
The price of domestic energy is based on geographical location and payment method, whereas business energy is based on location, business type, demand profile, contract length, payment method and credit score, meaning the process of calculating business energy rates is much more complex.
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.
How does comparing business energy differ from comparing domestic energy?
Online comparison sites
With domestic energy, you can use online 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 and home energy 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.
There is no difference in using an energy broker for your home or business energy; you can contact them via the web, phone or email, and they can provide quotes for both.