There can be a lot of confusion about business gas and electricity supplies when it comes to classifying your type of business, especially if you run a small business.
Energy suppliers now have to treat micro-businesses a little bit different to other commercial customers, so many small business owners need to know what the difference is between small businesses and micro-businesses so they know which category they fall into.
What’s the difference between micro-businesses and small businesses?
Basically, if you are a very small scale business operating with minimal staff and low business activity, you may be considered to be a micro-business. In most cases, micro-businesses are run by sole operators or small partnerships from small business premises.
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Although the difference in small or micro-business classification may not seem all that important, when it comes to your energy supplies it can make a lot of difference.
A micro business is a subset of the small business community which is based on the number of employees within the operation. A small business can have dozens of employees, but to be classed as a micro-business you need to employ 0-9 people or have a turnover less than £1.8 million. This definition would cover most of the 4.4 million businesses operating in the UK.
So for example, if you are a sole trader, self-employed, or have no employees, you operate a micro business.
Micro business taxation
As a micro-business, you will still pay tax on your turnover just like a small, medium-sized or large business. If your business is a limited company, you will be charged corporation tax rates, just like any other incorporated business.
However, if you choose to run as a sole trader, you are taxed at your personal income tax rate. Most micro businesses are run by sole traders or unincorporated partnerships, and most find it easier to run this way because it takes less effort to incorporate the business and file their statutory paperwork.
Many micro-businesses have completely different goals to large corporations and will have fewer business expenses than larger firms. While large businesses will be concentrating on cutting costs and trimming down their operations, micro-businesses will be concerned with growing their income as their business operational costs will already be low.
A micro business may just be a subset of the small business sector, but it faces unique challenges that force it to operate in ways different than larger companies.
How being a micro-business impacts on your energy supply
Ofgem is the Office of Gas and Electricity Markets. As an independent National Regulatory Authority, their role is to protect both domestic and business energy consumers now and in the future by working to deliver a greener, fairer energy system.
Ofgem made some very important changes in the contract terms that energy suppliers provide for micro-businesses. These changes now mean that the renewal and switching of energy contracts are now made much clearer and easier to manage.
What this means is that your existing energy company must communicate to you when a gas or electricity supply contract is coming up for renewal. Before this change, the window of opportunity for a company to switch to another supplier or negotiate a new supply contract was hidden deep in the small print of the terms and conditions, making it difficult for a customer to act before the power company automatically renewed the contract under more expensive trading terms.
This made if hard for a small business to switch to a cheaper deal with another company without being landed with a hefty penalty or leaving fee for breaking the new contract.
Ofgem decided that these business practices were unfair to smaller businesses, especially those often working on very tight budgets and operating without staff that would be responsible for managing essential business overheads and understanding the contractual terms and conditions.
Reducing your small business energy costs
When running a small or micro-business, you will want to carefully manage your outgoings and reducing your energy bills is one way to make significant savings.
With around 40% of UK businesses that haven’t switched their energy supplier for years, there are hundreds of thousands of businesses that are overpaying on their energy bills, some by hundreds of pounds per year!
By far the easiest and quickest way to save money on your business gas and electricity bills is to do a price comparison using any one of the popular online price comparisons sites. It can take less than a couple of minutes to find a list of business energy suppliers offering the best gas and electricity tariffs on the market today.
Comparisons sites to use to find the cheapest small business energy tariffs include:
- Money Compare (from Which?)
- Compare the Market
- Confused.com
- Go Compare
- Money Supermarket
- uSwitch
| What information do you need to provide? |
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| The only information you need to provide for your price comparison search is your business address and your contact details. |
What types of micro business tariffs are available?
Long gone are the days when energy suppliers would only offer fixed-rate tariffs for business customers. These days business energy contracts have fallen more into line with what is offered domestic customers with both fixed-rate and variable rate tariffs being offered.
Length of contracts has also changed to reflect the way most modern businesses operate, with most energy contracts lasting for one, two, or three years. It used to be commonplace for business customers to be tied up to lengthy energy contracts of five years or more, which these days are only suitable for large-scale, well-established corporations that don’t tend to move business premises as often as smaller businesses do.
When comparing business gas and electricity prices, you can choose from the following tariff types:
Fixed-rate tariff
For small businesses on a tight budget, a fixed rate tariff may be a good choice because the unit price of your gas and electricity will remain the same throughout the length of your contract. Knowing exactly what you are paying for your business energy can make your bills easier to manage and makes budgeting much simpler.
Variable-rate tariff
Choosing a variable rate tariff can look attractive, especially if you are switching energy suppliers at a time when wholesale energy prices are low. Under a variable tariff, the cost per unit of energy will change throughout the length of your contract in line with market prices.
This means that you can save money on your energy costs when there is a drop in the unit price of energy from your supplier. However, unit price rates can also rise, so if they go up what you pay for your energy will also increase.
No standing charge tariff
Domestic and business energy customers will pay a standing charge for their energy, This is a fixed daily cost charged by your energy supplier for the equipment and meters needed to supply and manage your energy supply.
No matter how much energy your business uses, you will still need to pay a standing charge. However, some energy suppliers are offering a no standing charge tariff, so technically you won’t pay this fee. But in most cases, this will mean that the price you pay per unit of energy will be higher than if you were on a standard fixed-rate energy tariff with standing charges.
Green energy tariff
The UK Government are encouraging all businesses to reduce their carbon footprint and reduce their impact on the environment, and one way to do this is to switch to a green energy tariff.
| Green energy tariffs and the environment → |
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| These are the latest tariffs to be introduced for both domestic and business customers. If you want to operate a more eco-friendly business, then you can opt for a green energy tariff. This means that your energy will come from renewable sources that cause less impact on the environment. |
Avoiding expensive deemed energy rates
Small and micro-businesses who fail to renegotiate their energy contract or switch to a new supplier before the end of their current energy contract will be placed on something called a rollover contract.
This means that while you are not officially signed up to a contract with an energy supplier your existing supplier will still provide your business premises with gas and electricity, but you will be charged the most expensive rates offered by them, which could see your energy bill skyrocket.
The best way to avoid paying these higher ‘deemed’ energy rates is by renewing your energy contract with your current provider before your contract runs out. However, auto-renewing with your current supplier could see you paying more for your energy than before as most suppliers will auto-renew your contract at much higher rates.
On the run-up to your energy contract expiring, you should compare the rates of the leading energy suppliers to find yourself the best deal. You can use any of the comparison websites mentioned above to find current tariffs being offered for businesses.
By running a price comparison search, you will easily be able to compare business energy prices from not only the ‘big six’ suppliers but also the smaller, independent energy suppliers.
What are the average business gas and electricity prices?
These tables show you the average prices per kWh and should help to give you an idea of what you can expect to pay, based on the size of your business.
The average price of gas per kWh
| Business size | Annual gas usage by kWh | Unit price per kWh |
|---|---|---|
| Micro business | 5,000 – 15,000 | 5.1p |
| Small business | 15,000 – 30,000 | 4.5p |
| Medium business | 30,000 – 65,000 | 4.3p |
The average price of electricity per kWh
| Business size | Annual gas usage by kWh | Unit price per kWh |
|---|---|---|
| Micro business | 5,000 – 15,000 | 14.4p – 15.9p |
| Small business | 15,000 – 25,000 | 14.3p – 15.1p |
| Medium business | 25,000 – 50,000 | 14.3p – 14.7p |
Extra cost-saving tips
Small and micro-businesses can make further savings by paying their energy bills by monthly direct debit. Most energy quotes will include a direct-debit discount, so if you don’t want to pay by direct debit your energy provider will usually add an extra 2%-5% to your invoice to cover alternative payment methods.
Because wholesale energy prices can fluctuate so much, it can be difficult to decide how long to commit to a business energy contract. For most small and micro-businesses it may be a good idea to sign up for a one-year contract wherever possible. Although many business energy suppliers offer deals up to three-years, reviewing and comparing your energy contract each year can save you money by switching to a better deal without having to pay any penalties or leaving fees.
Summary
As a small or micro-business owner, it is your priority to get the cheapest possible energy deal for your business. However, while it is easy to think that the cheapest tariff you find on a comparison search will be the best deal for you, it is also important to read the small print and make sure you understand the terms and conditions of your contract.
If the tariff being offered is temptingly low but has hidden clauses that could make it more expensive further down the line, it will be worth comparing quotes with other suppliers to see if there is a better deal for you.
Small and micro-business energy FAQ
The amount you pay for your business energy can be affected by where your business is located, your average energy consumption, the type of business your run, fluctuations in energy market prices, the length of your contract and the type of contract you have. A micro business usually just has to choose from the standard tariffs that are on offer.
No. You will not lose your energy supply while you are switching your energy contract. If there is any delay between the end of your old contract and the start of your new one, you may need to pay higher out-of-contract prices during this time.
Small business electricity usage will vary and depends on the size and type of your business. No two small businesses will use the same amount of electricity.
There is no one single best business electricity supplier because business energy costs will vary according to many factors, such as regional differences, the amount of energy used, the type of contract you are on etc.