Business vs Domestic Energy: What's the Difference?
Running a business takes up enough of your time without having to unpick your energy bills as well. But if you have ever wondered why your business energy feels different to what you pay at home, you are not imagining it.
The energy comes from the same grid. What changes is everything around it: the contracts, the pricing, the VAT, and the protections you do and do not have. Understanding those differences means you can make a clearer decision, spot a bad deal sooner, and switch with confidence.
This guide covers the key differences between business and domestic energy across electricity and gas.
How Does Business Energy Differ from Domestic Energy?
The energy itself is the same. What differs is how it is sold, priced, and regulated.
Domestic energy is designed for households. Contracts are short, switching is relatively simple, and customers are protected by the Ofgem price cap.
Business energy is built around commercial usage. Your price is based on how much energy your business actually uses. Contracts are longer. And the protections that domestic customers take for granted largely do not apply.
The key differences:
Longer contract lengths
Pricing based on your actual usage, not household averages
Higher standing charges in most cases
VAT at 20% rather than 5%
No energy price cap for business customers
Business energy covers both business electricity and business gas, whether you are a sole trader, an SME, or a larger organisation.
Is Business Energy More Expensive Than Domestic?
It depends on how your business uses energy. And that is exactly why comparing energy prices for a small business matters more than most people realise.
Business energy often comes with lower unit rates than domestic tariffs. Suppliers can predict commercial usage more accurately, which means they can buy energy earlier on the wholesale market and pass some of that saving on.
That said, business customers usually pay:
Higher standing charges
VAT at the standard rate of 20%, compared to 5% for domestic customers
Fixed contract rates locked in for longer periods
For businesses with steady or higher usage, the lower unit rate can more than offset those extra costs. For very low-usage premises, the reverse can be true.
Unit rates alone do not tell the full story. That is why it pays to compare the whole deal, not just one number.
Business vs Domestic Energy Contracts Explained
Contracts are one of the biggest practical differences between business and domestic energy. Worth knowing before you sign anything.
Domestic contracts are typically:
Around 12 months long
Easy to exit, often with a small fee
Protected by a 14-day cooling-off period under consumer contract law
Business energy contracts work differently. They are usually:
One to five years in length
Agreed based on your expected usage
Locked in for the full term, with limited options to exit early
Most business contracts do not include a cooling-off period. Read the terms before you commit. If your contract ends and you have not arranged a new tariff, you can find yourself on a deemed or out-of-contract rate, which is usually significantly more expensive.
The protections differ too. Ofgem's domestic rules do not extend to most business customers, though smaller businesses do benefit from some protections under the standard licence conditions that suppliers must follow.
How Are Business Energy Bills Calculated?
Your business electricity bill comes down to three things. Once you understand each one, the numbers stop being confusing.
Unit rate
This is the price you pay per kilowatt-hour (kWh) of energy used. Think of it as the cost of the energy itself. Business unit rates are often lower than domestic ones, particularly for higher-usage businesses. Rates vary by supplier and contract type, which is why comparing matters.
Standing charge
A fixed daily cost that covers network and administration charges. It applies whether you use any energy that day or not. Business standing charges tend to be higher than domestic ones, so it is worth factoring this in alongside the unit rate when comparing deals.
Your actual usage
How much energy your business consumes, measured in kWh, is the third piece. The more consistent your usage, the more accurately suppliers can price for you. Most comparison tools will ask for your annual usage upfront, so it is worth having that figure to hand.
Put those three together and you have got your bill. Knowing which part is high and which is competitive is what a proper comparison tells you.
Do Businesses Pay VAT on Energy?
Yes, and it is one of the most significant differences in cost between business and domestic energy.
Domestic energy is charged at a reduced VAT rate of 5%. Most businesses pay VAT at the standard rate of 20%.
Some smaller businesses may qualify for the reduced 5% rate if their usage falls below certain thresholds. According to HMRC, if your business uses fewer than 33 kWh of electricity per day or fewer than 145 kWh of gas per day, you may be eligible. It is not applied automatically, so you would need to contact your supplier to request it.
VAT can add up quickly, so it is worth understanding how it applies to your business before you compare tariffs.
For a detailed breakdown, see our dedicated guide to VAT on business energy.
Can I Use a Domestic Energy Tariff for My Business?
In most cases, no. If a property is used primarily for business purposes, suppliers expect it to be on a business tariff.
Using a domestic tariff when you should be on a business one can lead to:
Backdated charges once the error comes to light
Being moved onto a deemed business contract
Problems when switching or renewing
If you work from home and most of your energy use is personal, you can usually stay on a domestic tariff. But if the majority of your consumption is supporting business activity, a business tariff is what you need.
Not sure where you stand? Worth a conversation with your supplier sooner rather than later.
How to Switch Energy Suppliers for a Small Business
Switching business energy is more straightforward than many small business owners expect. It works differently to domestic switching, but the process itself is not complicated.
To compare and switch, you will typically need:
Your business address
Your current supplier's name
Your contract end date
Your estimated or actual annual energy usage in kWh
The switch does not interrupt your supply. Your gas and electricity stay on throughout. The new supplier handles the transfer once you have agreed to a deal.
Comparing before your contract ends is the smart move. Leave it too late and you could find yourself on a rollover or out-of-contract rate while you sort it, which is rarely the cheapest place to be.
Compare Business Energy Tariffs with Love Business
Energy prices move. Suppliers price differently. And the deal that suited your business two years ago might not be the right one now.
Love Business lets you compare business energy deals from a wide range of suppliers in one place. Not a list of options to wade through. Just a clear view of what is available for your business, so you can make the right call without the legwork.
We have helped over 500,000 UK businesses sort their energy and saved our customers more than £150,000,000 in the process. We know this space. Leave the comparison to us.
Compare live business electricity and business gas tariffs now and see what is out there for your business.
Business vs Domestic Energy FAQs
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What is the difference between business and domestic energy?
Business energy has different contracts, pricing structures, VAT rates, and protections compared to domestic energy. The energy comes from the same grid, but how it is sold and managed is quite different.
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Is business energy cheaper than domestic energy?
Business energy often has lower unit rates, but higher standing charges and VAT at 20% rather than 5% mean it is not always cheaper overall. It depends on your usage and the deal you are on.
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Can I use a domestic energy tariff for my business?
Most businesses should be on a business tariff. Using a domestic tariff incorrectly can lead to backdated charges, contract complications, and problems when switching.
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Why are business energy contracts different from domestic ones?
Business contracts are designed around commercial usage and longer terms. They generally come with fewer protections and no cooling-off period, so it is important to understand what you are agreeing to before you sign.
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How are business electricity rates calculated?
Your bill is based on three things: your unit rate (the cost per kWh of energy used), your standing charge (a fixed daily cost), and your total usage. Unit rates for businesses are often lower than domestic rates, particularly at higher usage levels.
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Do businesses pay VAT on energy?
Most businesses pay VAT at the standard rate of 20%, compared to 5% for domestic customers. Some lower-usage businesses may qualify for the reduced rate. It is not applied automatically, so it is worth checking with your supplier.
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Is there a price cap on business energy like there is for domestic?
No. The Ofgem domestic energy price cap does not apply to business customers. That makes comparing tariffs regularly more important for businesses than it is for households.
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How long are business energy contracts compared to domestic?
Business energy contracts typically run from one to five years. Domestic contracts are usually around 12 months, with more flexibility to switch or exit.
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How do I switch from a domestic to a business energy tariff?
You can compare and switch using the Love Business comparison tool. You will need your current supplier details, contract end date, and annual usage. The switch does not affect your supply. See our business energy page to get started.
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Can small businesses get cheap energy deals?
Yes. Comparing regularly is the most reliable way to find a competitive rate. Rates vary by supplier, contract length, and usage, so what works for one business may not suit another. Love Business gives you access to deals from multiple suppliers in one place.
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How do I compare business energy tariffs?
A comparison service gives you live pricing from multiple suppliers without having to contact each one individually. Love Business lets you compare business electricity and gas tariffs online. Compare now to see what is available.
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What is the best energy supplier for small businesses?
There is no single answer. The right supplier depends on your usage, the contract length that works for you, and how much certainty you want over your costs. Comparing regularly is the best way to make sure you are on a deal that actually suits your business.