By Nicole Wilson•
You don't want to spend too much time staring at energy bills. We hear you. But it's important that you're comfortable with the key terms and charges on your statement.
VAT is a government tax which is added straight onto your business energy bills. Every business will be charged at the standard rate of 20% unless you qualify for a reduced rate of 5%.
You're eligible to pay a reduced rate if any of the following apply:
Your business is a registered charity.
You only consume a small amount of energy. This is defined as using less than 33 kWh of electricity per day (1000 kWh per month) or 145 kWh of gas per day (4397 kWh per month). You can check how much your business uses on your energy statement.
You use your business energy for domestic or residential purposes. Boarding schools or care homes might qualify for this reason. You can read more about 'qualifying uses' here. If you use 60% or more of your energy for domestic purposes, the discount will apply to your whole bill. If it's less, the discount will be applied to the proportion used for domestic purposes only.
If you are eligible for a reduced rate because your business only consumes a small amount of energy, your supplier should apply this discount to your bill automatically. The reduced rate will apply to any month your energy usage falls below the threshold.
If you qualify for any other reason, you will need to register using a VAT Declaration form, which is available from your energy supplier. This form will also help you to claim a refund for any recent overpayments you’ve made on business energy VAT. If you're a Bulb Business member, get in touch at email@example.com to register for 5% VAT.
Even though energy is a business purchase, the money you spend on gas and electricity can't be claimed back as a business expense.
Organisations that qualify for a VAT discount will usually be exempt from other government levies too. Which brings us on to…
The Climate Change Levy (sometimes referred to as CCL) is an environmental tax. It was introduced by the government to encourage businesses to reduce their energy consumption and operate in a greener way.
Even businesses using a green energy supplier need to pay for CCL. Your supplier will charge you a set rate per kWh to cover this tax. The standard rate is set by the government and changes every year on 1 April. This payment will be clearly labelled on your bill.
From 1 April 2020, the charge for electricity is £0.00811 per kWh, and £0.00406 for gas.
From 2021, it’s £0.00775 per kWh for electricity, and £0.00465 for gas.
If your business pays the reduced rate of VAT, you'll be exempt from CCL payments, too. Energy-intensive businesses with Climate Change Agreements (CCA) are also eligible for heavily-reduced CCL payments. That's because these agreements show a commitment to reducing carbon emissions on an industrial scale.
The discount for businesses with a Climate Change Agreement is:
Electricity: 92% from 1 April 2020
Gas: 81% from 1 April 2020
Find out more about CCAs on the .gov website.
Energy suppliers pay other companies to maintain and operate the energy network as a whole. These third-party costs include:
Also known as Transmission Network Use of System (TNUoS). This charge reflects the cost of maintaining the infrastructure used to get massive amounts of energy from where it's generated to regional distribution network operators. This is paid to National Grid.
Also known as Distribution Use of System (DUoS). This reflects the cost of delivering energy from the National Grid network to your property. This is paid to one of six distribution network operators in the country, depending on your region.
Also known as Balancing Use of System (BSUoS). This is a charge paid to National Grid for keeping the amount of power generated and the amount of power used in balance nationwide.
These reflect the costs of installing, maintaining and reading energy meters as well as keeping the data collected secure. This is paid to data handling and meter operator companies.
There are also green levies like the Renewable Obligation to factor in. This money goes to HM Revenue & Customs.
All of these costs are incurred by your supplier and are usually 'passed through' to customers like your business. Pass-through charges are approved every year by the energy regulator and may appear as a separate line on your energy statement.
Some suppliers add their pass-through costs as an extra charge on top of your business tariff. This makes it more difficult to compare energy suppliers and can come as a nasty shock on your first statement.
If you're a Bulb Business member, we’ve rolled all of these costs into the price of your tariff, so what you see is what you pay. The only exception to this is if you are a large business with a half-hourly meter. In that case, your pass-through costs will be a bespoke charge based on your supply capacity and clearly labelled on your statement.
A standing charge is a daily fee for keeping your business property connected to the energy network. It's a bit like paying for line rental on your phone.
You'll pay a fixed price per day, no matter how much gas or electricity your business uses.
That means you'll have to pay a standing charge even when you're not actively using energy, for example over a bank holiday weekend.
Standing charges vary by supplier, and will be laid out as part of your tariff. It's an important thing to look at when you're comparing business energy deals.
No surprises here, the largest cost on your energy statement will be for the gas and electricity you've used.
This is charged at a rate per kWh (kilowatt-hour) based on your meter readings. Your supplier may use an estimate, if they haven't received a meter reading from you, so it's important to keep them up to date. If you're a large business with a half-hourly meter, your meter readings will be sent to your supplier automatically. You can read more about half-hourly meters here.
The rate your business is charged per kWh of energy depends on your tariff. The two most popular kinds of tariff are fixed-term and variable. There are pros and cons to each.
A fixed term tariff means that your unit price for gas and electricity will stay the same for the length of your contract. This is helpful for budgeting and it offers a bit of security against price rises in the wider market. Fixed-term contracts mean that your business will not benefit from any drop in the price of wholesale energy. Exit fees make it costly to switch suppliers mid-contract, and you’ll have to shop around at the end of your fixed term to avoid being rolled onto expensive out-of-contract rates.
A variable rate tariff means that the price your business pays for gas and electricity reflects the real cost of wholesale energy. This can go up or down. Variable rates can offer more flexibility and better value for money, if you are comfortable with the amount you pay changing each month.
Bulb's Business tariff
Our business tariff is a variable rate, which means no long contracts or exit fees. If the wholesale cost of energy goes down, we'll pass those savings on to our members. And if they go up, we'll give all Bulb Business members 30 days notice, so you can decide whether we still offer the best value for money. We don't believe in introductory deals, so you know your business is always on our best rate, fair and square.