If you run your business from your home, then it’s probably crossed your mind at some point that a proportion of your gas and electricity usage can be put down to work purposes.
But what can you do about it and can you benefit?
In this guide, we explain how to handle your energy bills if you run a home business or work from home.
Is business energy cheaper than domestic energy?
When it comes to average unit rates there's no competition - businesses pay a far lower price, and it tends to be that if all other purchasing characteristics were the same then the larger the business, the lower the unit rate.
However, that's not all there is to take into consideration.
If you have a domestic energy tariff, you'll only pay 5% VAT on your energy, while businesses typically pay 20%.
Businesses also have to pay the Climate Change Levy or CCL. Currently this is at a rate of 0.541p per kWh for electricity and 0.188p per kWh for gas.
Inevitably both these extra charges will push up the cost of business energy when you compare it to domestic, so it's important that you don't just take headline unit rates at face value.
However, there are some exceptions on both VAT and CCL that could make a difference:
- You don't have to pay CCL on any renewable energy you use.
- You don't pay CCL and only pay 5% VAT if you use less than an average of 33 kWh of electricity and 145 kWh of gas a day. (That's the equivalent of 12,045 kWh of electricity and 52,925 kWh of gas a year - well above the amount of energy most people use at home.)
- You don’t pay CCL and only pay 5% VAT if you have a residential element to your business e.g. if you run a B&B, a campsite or a care home.
How many people work from home?
According to the ONS 11.7% of the national workforce or 3,403,000 people work from home. That’s significantly more than most people would expect and therefore a significant number of people who could benefit from switching to business energy.
Should you choose a business energy tariff or a domestic energy tariff?
Given that prices are cheaper, a business tariff might seem like a no-brainer, but there are a few things you need to consider.
1. Usage Levels
You need to use a significant proportion of the energy in your home for business purposes to be able to switch to a business tariff.
50% is a good benchmark figure, but energy suppliers have their own rules.
Even if this sounds a high threshold don’t worry. If you're working from home all day, with lights, heating, computer, printer and all the other usual office equipment then it’s quite possible that you will hit that 50% point.
You can check this by taking meter readings at the start and end of the working day for a week and calculating the split between energy used while you're working and energy used while you’re not.
Remember to not include things like your fridge which would be using electricity all day whether or not you were working from home.
2. Business Status
you will need to be registered as a business or to have a business rates document or other proof that your business exists, like a website or a compliment slip. The energy supplier will want to see something tangible to confirm that you really have a business and are really operating it from your home.
3. Price Comparison
you need to be sure that it really will be cheaper. Use a domestic price comparison website to find the cheapest domestic tariff for you. Don’t jump straight away though.
Once you’ve got an idea of your domestic offer then get in touch with Business Juice and see how the cheapest business tariffs measure up. Business Juice will work out things like VAT and CCL for you, so you will get the full picture on cost.
And let us know this is what you’re doing so that we can cater the offers for your specific needs.
4. Meter Profile
Whilst there is no need to get a new meter to switch to a business tariff, your meter will be given a new 'profile'. That profile will model your consumption differently than under a household tariff, that is good news at it will assume you use more energy in the day, when it is cheaper than the mornings and early evenings when with domestic demand price are higher.
5. Fixed Price Tariff for the Duration of Contract
Business energy tariffs are usually fixed price. This means that you'll pay the same rate from the day you sign your contract to the day it ends.
Whilst you can get fixed price domestic tariffs, they aren't quite as fixed in terms of contract lengths and so naturally offer less protection from price rises than a business energy contract does.
Business energy contracts and prices can be fixed from anything from one month to five years!
On the one hand this is reassuring, because it helps you to budget and it protects you from price rises; on the other hand in the rare event that prices fall, the unit rate and standing charge you pay will stay the same.
With a domestic energy tariff you can pay a fee (usually £20 - £100) to get out of a fixed price contract, but with a business energy tariff, you can't switch while you're still in a contract, unless you pay the full value of the contract outright, which is hardly an attractive prospect. This risk however needs to be weighed up against the security of knowing your price won’t move regardless of the direction of the underlying market.
6. Regulator Protection
Business energy customers won't get the levels of protection that domestic energy customers receive from the regulator Ofgem and customer bodies such as Consumer Futures. Whilst this is not unexpected, given a business owner would naturally be expected to be more commercially savvy than a householder, it can result in a fundamentally different customer experience.
Despite this, if you're running a business from home, you may well fit the definition of a micro business, indeed it is in all probability likely that you do.
Micro businesses are defined as consuming less than 200,000 kWh of gas or 55,000 kWh of electricity a year, or have fewer than ten employees (or their full-time equivalent) and an annual turnover or annual balance sheet total of €2m or less.
Businesses that fall into this category are offered domestic like protections and are safely insulated from some of the commercial challenges facing large energy buying businesses.
See our guide to business energy regulation to find out more.
7. Tax, energy and working from home
Even if you decide to stick with your domestic tariff there is a positive benefit of working from home.
Whether you're on a business energy tariff or a domestic energy tariff, you can claim for the electricity and gas you use while you're working as a legitimate business expense.
To do this you need to ascertain your energy usage by the proportion of the area of your house that your office/workspace occupies.
For example, if you used a small room at home as an office, which represents 5% of the floor area of the house, and your electricity bill for heating & lighting was £300, you could claim £15, or 5% of the total.
You can also claim according to the amount of energy for which your business accounts.
For example, if you worked from your living room for half the time, and your family used it the other half, and it represented 10% of the area of the house, you could claim £75, based on a total energy bill of £1500 - 10% of which is used in the living room, and then halved again, because you're only using that room for work half the time.
These examples are from HMRC and they're just an illustration. You should check what you could claim in your individual situation to be doubly sure of your rights.
- HMRC: Specific deductions: use of home: apportioning the expenditure
- HMRC: Specific deductions: use of home: examples
How to switch to a business energy tariff
Having considered all of the above, if the idea of a business energy contract is an attractive one for you , then a quick phone call to Business Juice is all you need to do to get the process underway.
Our energy experts will be able to double-check if this is the right move for you and will recommend an appropriate tariff and supplier for your needs. Equally, if on balance we don’t feel that a business energy contract is right for your circumstances we will tell you and help you secure a domestic tariff that better suits your requirements.
If our guide to business energy and working from home has inspired you we'd love to hear from you, simply give us a call on 0800 051 5770.