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Understanding business energy bills. A UKPower guide and FAQs
If you’re being hit with massive business energy bills every month, it’s probably because you’re on an expensive deal or you’re using too much gas and electricity. The simplest way to find out is to check take a look and do a quick business energy bill breakdown.
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*with no price cap in place for businesses, some out of contract rates are up between 15% and 120%
What should you look out for on your business energy bill?
There are three things you first need to look for when you get your bill:
- Unit rate – Measured in kilowatt hours (kWh), this is the amount you pay for the gas and electricity you use. Although your bills might still be high if you use a lot of energy, having a lower unit rate means you’re paying less for that energy and can help to cut costs.
- Standing charge – This is a fixed daily rate charged by your supplier to cover the costs of supplying energy to your property. Switching to an energy deal with a lower standing charge can help to cut the cost of your bills.
- Contract end date – It’s important that you know your contract end date as this will give you an idea of when you can switch to a better deal – remember, you can’t arrange a new business energy deal until your current one enters its switching window, which can be anything from a few weeks to a few months before your contract’s end date. When you switch business energy with UKPower, we’ll keep an eye on your contract end date and proactively search for the best deals on your behalf, to save you time and money.
If your unit rates and standing charges are high, then this is probably why your energy bills are high.
To help you work out whether you’re overpaying, here are some numbers to crunch.
How much is an average business energy bill in the UK?
Although there are number of factors that affect business energy bills – the size and location of your business, the energy efficiency of your building, and when you use energy, to name a few – here are some average figures you can use for comparison.
Average business gas prices
| Business Size | Annual usage | Price per kWh | Standing charge | Avg. annual cost |
|---|---|---|---|---|
| Micro business | 5,000 - 15,000 | 4.0p | 32.0p | £516 |
| Small business | 15,000 - 30,000 | 3.8p | 30.0p | £965 |
| Medium business | 30,000 - 65,000 | 3.5p | 28.0p | £1,502 |
Average business electricity prices
| Business Size | Average annual usage (kWh) | Average price (per kWh) | Standing charge (daily) | Average annual price |
|---|---|---|---|---|
| Micro business | 5,000 - 15,000 kWh | 13.2p - 14.5p | 23p - 27p | £650 - £1,800 |
| Small business | 15,000 - 30,000 kWh | 12.4p - 14.1p | 23p - 27p | £1,900 - £2,900 |
| Medium-sized business | 30,000 - 50,000 kWh | 12.2p - 13.3p | 23p - 27p | £3,300 - £5000 |
Although the figures above are based on industry averages and only intended as a guide, they should give you a good idea of how much energy your business should be using and roughly how much it should be paying.
As a basic rule of thumb, if you run a small business and you’re paying more each year than the average energy bill for small business shown above, you need to check your energy usage and consider switching suppliers.
Or you can even dig a little deeper and investigate the costs in more detail. If the average standing charge on business energy bills is higher than is shown in the tables above, you’ll be able to cut your bills by switching to a deal that offers a lower rate.
Remember, the standing charge is paid no matter how much energy you use, so switching to a deal with a lower standing charge should instantly save you some money. But bear in mind this cost might be offset by a higher unit rate, so you’ll need to do your sums and work out what best suits your business.
What charges are included in your business energy bills?
When you check your bill, you’ll find there are a few separate charges that make up the total amount you have to pay, including:
Wholesale energy costs
- Transmission Use of System (TNUoS) charge
- Distribution Use of System (DUoS) charge
- Climate Change Levy (CCL)
- Metering costs
- VAT on gas and electricity
- Supplier margins
Here’s a quick breakdown of what makes up your business gas and electricity bill.
What is the wholesale cost and how does it affect your business energy bill?
A large chunk of your bill is made up of the costs your energy provider pays to buy your gas and electricity from wholesale suppliers - to make sure you don't run out of gas or electricity during your contract, providers buy the energy they expect you to use in advance of it starting.
Although this means there’s no way to exit your energy deal early, at least not without having to pay up your remaining contract, these fixed-price deals protect against any increase in wholesale prices, so they won’t have an immediate impact on your bills.
What is the Transmission Use of System (TNUoS) charge?
Transporting and distributing energy isn't cheap, so the costs that suppliers incur for doing so are also included in your business electricity and gas bills.
With providers also having to cover the expense of maintaining and upgrading the National Grid, these charges are worked into the bills you pay too. It's worth noting these will vary depending on the location of your business, as different zones place different levels of demand on the network and are billed accordingly.
What is the Distribution Use of System (DUoS) charge?
These costs are applied by the Distribution Network Operators (DNO), which are companies that are licensed to distribute electricity in the UK. The charges are applied for a range of factors, including day and night charges and the maximum supply requirements of sites that make up the network.
What is The Climate Change Levy (CCL)?
The Climate Change Levy (CCL) is a tax which was introduced by the government in 2001, to encourage various sectors to improve energy efficiency and cut their greenhouse gas emissions. It is paid by non-domestic energy users on a per-unit basis.
In short, this is designed to act as an incentive for businesses to boost their energy efficiency credentials by reducing their carbon emissions.
Some companies are exempt from paying the CCL, depending on the amount of renewable energy they use, although nuclear power - despite having no direct impact on carbon emissions - is subject to the charge.
What are metering costs on my business energy bills?
Although energy meters look like relatively simple bits of kit, they complete complex functions like managing multiple energy patterns at differing times of the day. They need to be paid for and maintained as a physical asset (which is usually amortised over a very long period), and if you’ve not got a smart meter, you need to pay towards having your meter read.
What is the rate of VAT on energy bills for business?
VAT on electricity and gas bills for businesses are usually charged at a rate of 20%. Some businesses will be able to pay a reduced rate of 5% VAT on energy bills if they use less than what is known as the de minimis threshold.
What are the supplier margins on my business energy bill?
Energy suppliers are run like any other profit-making business, and the amount they make from your custom is shown as the ‘supplier margin’ – it’s not just profit though, marketing costs, acquisition costs, administration costs all being covered before net profit is taken.
Business energy bills FAQs
What is an average business energy bill?
This will depend upon the size of your business and how it uses gas and electricity, but a small business can expect to pay around £965 a year for agas and between £1,900 and £2,900 a year for electricity.
Why am I billed separately for business gas and business electricity?
Unlike household energy deals, business energy contracts don’t offer a dual fuel option. This means you’ll be billed separately for business gas and business electricity, even if the same provider supplies both.
What is a dual fuel tariff?
A dual fuel tariff is when you sign up to have your gas and electricity supplied by the same company, and can be offered as both fixed and variable rate deals.
How much is VAT on gas and electric for business?
Most businesses will pay a 20% VAT rate on electricity and gas, but some may be eligible for a reduced rate of 5%. To find out more, check out our business electricity VAT rate guide.
What is the de minimis rate of VAT on electricity in the UK?
The de minimis rate of VAT on business electricity is 33 kilowatt hours (kWh) or less of electricity per day.
What is the de minimis rate of VAT on gas in the UK?
The de minimis rate for VAT on gas is 145 kilowatt hours (kWh) or less of gas per day.
Can I switch business energy if my accountant handles my business energy bills?
If you’d sooner let your accountant handle your energy switch, they are free to contact us on your behalf. Or you can give our energy experts your accountants’ details and we’ll contact them on your behalf. Either way, we can still switch you to a better deal to help cut your business energy bills.
What is energy back billing for business customers?
Back billing is when you’ve not been charged correctly for your energy usage, and your supplier sends a catch-up bill to charge you for the shortfall. Suppliers can only back bill you for a maximum of 12 months. If they back bill you for a period longer than this, you still only need to pay for the energy you've used in the last 12 months.
Can I claim back the VAT on my business energy bills?
When it comes to a business claiming VAT back on energy bills, this can only be done if you work from home. For example, the advice on the government website states: “You work from home and your office takes up 20% of the floor space in your house. You can reclaim 20% of the VAT on your utility bills.”
But while business energy might technically count as a business-to-business purchase, you can’t claim back the VAT on energy bills for business.
Does being a not-for-profit organisation make a difference to your energy bills?
No, this doesn't make any difference - as far as the suppliers are concerned, not-for-profit companies count as a business, so we'll still be able to switch your business energy to a better deal.
What is a rollover contract?
This is when your contract automatically renews when your current deal expires - if you don't end your deal with a letter of notice within a specific timeframe, they will renew it and you may not even know about it.
How can I avoid getting a rollover contract
Getting a rollover contract entirely depends on the energy supplier you're with, as each of them have different and often complex rules on when you can cancel your contract. There are many factors to consider to prevent a rollover contract, but keep these two in mind:
- Keep an eye out for a letter from your supplier that tells you when they intend to roll you onto a new contract.
- It's then up to you to end your contract before a set date.
If you miss the switch period then you'll be locked in to another deal for a set period of time, and this process then repeats itself, meaning you’ll pay higher bills year after year.
Are there other types of contracts to look out for?
Yes - In addition to rollovers, there’s also '28 Day' and ‘deemed and Out of Contract Rates' that your business may be on.
What is a 28 Day contract?
If your business has not tried to switch suppliers since the market was deregulated in the early 1990s, you may be on a 28 Day supply contract and paying variable rates. These are usually expensive, which is why we recommend being on a fixed-rate, fixed-term deal. On the plus side, as the name suggests, you only need to give 28 days' notice if you want to cancel and switch.
What are out-of-contract and deemed tariff rates?
A deemed tariff rate is applied usually when a business moves into new premises with no contract in place, and without switching to a new provider.
Similarly, out of contract rates apply when a contract comes to an end and no alternative rate is put in its place, resulting in the business being charged at the existing energy suppliers’ rate. The good news is you can get out of these contracts with just 28 days’ notice.
What is a half-hourly/100kW supply?
Meters described as half-hourly are for businesses that are energy intensive, which have had an average peak electricity demand above 100kW in any three months over the past year. Learn more about half hourly electricity, and how it can help your business save energy.
What to do if you’re new to the premises?
If you're new to your business premises and don’t have your own energy contract in place, you'll be supplied by the same provider as the previous tenants, and you'll most likely be charged out-of-contract or deemed rates which are higher than average.
So, it's important to arrange a new commercial energy deal for your business as soon as possible. We can help you with this process, if you let us know your new address, we can find out the name of your current supplier.
Can you install a meter in a new site?
If you’ve recently moved your business to a new site and would like a new electricity meter or gas meter installed the best thing to do is to contact your local business energy supplier, who will install a meter and enter you into a fixed-price contract on the minimum fixed-term deal they offer.
Once this is sorted, we can search the market and compare business energy prices to find you a cheaper provider to use when your deal expires.
What if you work from home?
If you work from home and want to take out a business energy deal, you'll need to be able to show that 50% or more of the energy you use is for commercial reasons.
This excludes the running costs of any appliances that would be running regardless of whether or not you were working at home, such as fridges and freezers, but you'll most likely find that lighting, heating and equipment running costs will cover this.
As a home worker, you might find a microbusiness energy deal is better suited to your needs, as these work more like domestic energy deals. For more on this type of deal, along with eligibility criteria, check out our guide to microbusiness energy.
If you are in this position, you might be better off just switching to a better domestic energy deal - just pop your postcode in the box below to run an energy price comparison to see how much you could save.