Small business electricity rates: what sets the price

What sets small business electricity rates?

A tariff sets two charges on a business electricity bill. The unit rate is the price for each unit of energy used. The standing charge is a fee paid each day, even if no energy is used that day. ^[1]

Whether the rates on a bill look right is a question for a business energy review, and the guide to business electricity charges shows what else a bill contains.

The contract type shapes both charges. Fixed rate contracts fix the price of unit rates and standing charges for the length of the contract. With a variable-rate contract, the price paid for energy can increase or decrease during the contract period.

What is the average cost of electricity for a small business?

None of the sources used for this guide gives an average electricity cost for a small business, so no figure is quoted here.

What a business pays depends on how much electricity it uses, the unit rate and standing charge in its tariff, the type of meter installed and how the bill is paid. These costs can go up or down for different reasons, for example because of the price of buying energy.

Size matters too. Ofgem's contract guidance treats a business as small if it has 11 to 50 employees and an annual turnover of up to £6.5 million or a balance sheet total of no more than £5 million, and a business can also qualify if it uses up to 200,000 kWh per year of electricity. ^[3]

Comparing offers may lead to a move, and the guide to switching business energy supplier covers that process.

What is the current business rate for electricity?

The sources used for this guide give no current benchmark for a business unit rate or standing charge, so the figures in the contract and on the bill are the ones to check. VAT is a separate tax consideration on the bill.

From 1 October 2026 to 31 March 2027, qualifying supplies of electricity in Great Britain are liable to VAT at 0%. ^[2] In Northern Ireland, qualifying supplies of electricity remain liable to VAT at the reduced rate of 5%.

The temporary zero rate is separate from the underlying rule. The reduced rate of VAT applies to supplies of fuel and power for qualifying use, and supplies of electricity not above an average of 33 kilowatt hours per day, 1,000 kilowatt hours per month, to one customer at any one of the customer's premises are also subject to the reduced rate, so being a small business is not itself the VAT test.

Where premises use electricity partly for qualifying use and partly for other purposes, the split matters. If 60% or more of the fuel or power is for qualifying use, the whole supply is treated as for qualifying use and charged at the reduced rate.

A supplier of mixed-use electricity should obtain a certificate from the customer declaring the percentage put to qualifying use at each premises.

Who is the cheapest small business electricity supplier?

None of the official sources used here ranks suppliers, so no supplier can be named as the cheapest. Prices differ by site, usage and contract, so a ranking would not fit every business.

A practical quote comparison covers these points, ideally on the same annual usage:

• the annual consumption and meter details each quote assumes
• the unit rate and the standing charge
• the contract type and the length of the term
• any fees, including those in special clauses
• whether broker fees or commissions are included in the price
• what happens at the end of the contract

You will need to give a new supplier some information before signing your contract, including your annual consumption and details of your meter. ^[4] The best option may be with your current supplier, so ask for a renewal quote as well.

Who is the cheapest electricity supplier in Scotland?

The sources used here name no cheapest supplier for Scotland and give no Scottish prices. A business in Scotland compares quotes in the same way: the unit rate, the standing charge, the contract and the term, all set against its own annual usage.

One geographical point is clear from the sources. The temporary zero rate of VAT is for Great Britain, which the notice defines as England, Scotland and Wales.

Ask each supplier for a written quote for the premises concerned. Compare the full annual cost, not the unit rate alone, because a low unit rate can sit alongside a higher standing charge.

What happens to the rate when a contract ends?

The rate can change when a contract ends, so note the end date early. Fixed-rate contracts include a switching window, a set period of time for you to renew with your supplier or tell them you intend to leave. ^[4]

Deemed and out-of-contract rates arise in different ways. A business is put on a deemed rate if its energy supplier goes out of business. A business that uses energy at new premises before its new contract starts could be put onto a deemed-rate contract. Deemed rates are usually higher than negotiated contract rates.

Some suppliers move you onto out-of-contract rates if your fixed-term contract ends without you agreeing to a new deal. These rates are usually more expensive than fixed-term contracts.

Some contracts automatically renew at the end of a fixed term if you have not made a new arrangement or switched to a new supplier. The new arrangement will be for a fixed term (usually 12 months), and may be on a higher rate.