Business vs domestic energy: what’s the difference?

Whether you’re running a small business from home or just managing your household bills, it’s important to understand the difference between business energy and domestic energy.

‘But it’s just gas and electricity… isn’t it all the same stuff?’ we hear you ask. Well, you’re not wrong. While both business and domestic customers get their energy from the same sources, the ways that energy is priced, taxed, contracted and regulated are very different.

But don’t worry, we’ll clear everything up.

Contracts and tariffs

One of the major differences between domestic and business energy is the way you pay for it. In a nutshell, domestic energy contracts are heavily regulated and designed to be consumer-friendly, whereas business contracts can be more bespoke, but require a little more attention.

Domestic energy

• Standardised tariffs – Domestic energy customers can choose between a small number of well-defined tariffs, including:
  • Standard variable tariff – The default tariff, which can go up or down depending on wholesale energy prices and other factors, but is subject to the energy price cap
  • Fixed-rate tariffs – Locks in a price for a fixed period of time, usually a year or more.
  • Economy – Offers cheaper rates during off-peak times.
• Consumer protections – Domestic energy customers also benefit from strong regulation and protection, such as Ofgem’s energy price cap – which limits the amount providers can charge for energy – and 14-day cooling-off periods.
• Limited customisation – The downside of well-defined tariffs is that they don’t offer much in the way of flexibility. Most suppliers won’t offer bespoke tariffs, tailored to your individual usage.

Business energy

• More varied tariff options – Business energy customers will usually be presented with varied contract types, including:
  • Fixed-term contracts – Locks in unit prices for the duration of the contract.
  • Flexible contracts – Unit prices vary according to market conditions. These contracts are typically used by large businesses, or energy-intensive users.
  • Pass-through contracts – Unit price is usually fixed, but other costs, such as network or environmental charges, are variable.
• Bespoke contracts – Business energy contracts are also usually bespoke, tailored to the individual company based on factors like business size and location, usage volume and patterns and even credit risk. Some contracts may also auto-renew, if they’re not cancelled before the end of the contract period.
• Limited consumer protections – You likely won’t find a 14-day cooling-off period with many business energy contracts, which is why it’s so important to compare offers carefully before signing. Business energy tariffs are also not subject to the energy price cap.

Pricing and VAT

While domestic and business users are both hooked up to the same national electric and gas networks, the way providers apply charges – and the way energy is taxed – can vary significantly.

A domestic energy tariff is usually pretty straightforward, featuring a unit rate (per kWh) and a standing charge, which is the daily fee for being connected to the grid. On the other hand, business energy prices are usually negotiated individually, depending on a number of factors like usage, location and even credit history.

In terms of tax, domestic customers pay 5% VAT on their energy bills – a reduced rate set by the government to help keep energy prices affordable – while business customers can expect to pay 20% VAT.

On top of that, most businesses will also pay an additional climate change levy, which currently (2024-25) stands at 0.775p per kWh for electricity and 0.672p per kWh for gas.

Metering differences

Even the way energy is metered can vary between domestic and business customers. You’re probably familiar with what you have at home – domestic properties will typically use standard, smart or credit meters.

Businesses on the other hand may use half-hourly meters, maximum demand meters or multi-rate meters, depending on their individual tariff.

Business vs domestic energy at a glance