Energy prices are barely out of the news these days – soaring wholesale gas prices have put household and business energy prices up to record levels. And today’s energy price cap announcement means domestic energy bills will increase by £693 for millions of households from April 1 this year.
But if you’re a business owner and you have a dedicated premises for your business, you won’t be protected by the price cap. This situation has seen some commercial suppliers put their out of contract rates up by as much as 120%.
In this instance, it makes sense to compare business energy and switch if you can get better rates. If you run a large business or SME, it makes sense to take out a business energy deal as you can often negotiate cheaper gas and electricity rates than if you have a domestic energy deal at your business premises. But what if you work from home or run a micro business?
Will the energy price cap affect your business?
If you run a business, you might be wondering if the energy price cap announcement will affect your energy prices. It won’t directly affect them unless you have a domestic energy deal at your premises. It you have a business energy deal, your rates might be indirectly affected.
What is a micro business?
A micro business is one that one that operates on a very small scale, but there are various definition of exactly what a micro business is:
The European Union (EU) defines a micro business as definition of a micro business is one that has less than 10 employees and has a turnover or balance sheet of less than €2 million (£1.7 million).
The Office for National Statistics (ONS) defines a micro business as a subset of Small to Medium Enterprises (SMEs), which differ from SMEs as they tend to be owner-manager entrepreneurial (OME). And, as with the EU definition, SMEs consist of teams fewer than 250 employees, microbusinesses have a headcount of up to just nine employees.
Her Majesty’s Revenue and Customs (HMRC) define a micro business as one that has less than 10 employees and a turnover under £2 million.
Ofgem, the UK energy regulator, defines a micro business as one that:
- Uses less than 200,000 kWh of gas a year, or
- Uses less than 55,000 kWh of electricity a year, or
- Has fewer than ten employees (or their full-time equivalent) and an annual turnover or annual balance sheet total not exceeding € 2 million.
Does your micro business need a business energy deal?
If your business meets the Ofgem definition of a micro business, then you should take out a business energy deal designed specifically for your type of business – you’ll benefit from the cheaper rates offered to business owners without the restrictive terms of a SME and large business energy deal.
While SMEs and large businesses are tied into their business energy deal for the entire duration they signed up for – there’s no early release clause and once you sign up, you’re locked in – micro business energy deals are much more like domestic deals and benefit from the following:
- The maximum notice period for terminating a micro business contract is 30 days
- Suppliers must include the current prices, new prices and annual consumption on renewal letters for fixed-term contracts to make comparisons easier; and
- Suppliers must take all reasonable steps to acknowledge termination notice within five working days of receipt.
- Micro-businesses on fixed-term contracts should now receive a renewal letter from their supplier around 60 days before it ends.
Do you need a business energy deal if you run your business from home?
If you run your business from home and at least half of the energy you use if for business purposes – including computers, lighting and heating, but not things like fridges and freezers – then you can get a business energy deal. The same applies if you work from home.
It’s worth doing your sums before you sign up for a business energy deal though as, although rates are often cheaper, the rate of VAT you pay is higher on business energy than domestic energy – 20% compared to 5%.
