Understanding Your Business Energy Bill

February 26th, 2020
Understanding Your Business Energy Bill

It would appear that many of us are paying too much for our energy and it comes down to the simple fact that we don’t understand the market. “There are millions of customers paying too much for their energy bills – but they don’t have to,” according to Roger Witcomb, chairman of the energy market investigation, reported by the BBC.

Knowing your contractual terms and understanding your business energy bill usage makes it easier for you to shop around and keep on top of the best deals, enabling you to save money over the year.

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Do businesses pay less for electricity?

No, this is in fact quite the reverse, businesses tend to pay more for their business energy bills due to differences in VAT. As a domestic user, 5% of your energy tariff goes towards VAT whereas in business, you can pay anything up to 20%. Businesses may also have to pay what’s known as CCL, a climate change levy which according to Bulb, a UK energy supplier, is presently set at 0.541p per kWh for electricity and 0.188p per kWh for gas. [2]

Contractual agreements

When you sign up with an energy supplier, you should firstly check the contractual terms. It is usually easier for domestic customers to switch suppliers than business customers. If you plan to switch as a domestic customer, you may incur a small charge, but as a business customer, you may be prevented from doing this altogether. It is essential as a business customer that you fully understand the terms of your contract and how business energy bills work before switching.

Failing to understand the terms of a business energy contract routinely leaves business people out of pocket, as suppliers are often reluctant to let business customers go. Knowing when the contract is due to come to an end gives you time to shop around for a better deal prior to the end date. You should really start looking at least a few months beforehand, allowing you time to give notice to your existing supplier and find the deal which suits your business.

What is one unit of electricity?

Units of electricity are measured in kilowatt hours (kWh’s), with one unit of electricity being equal to one kWh. It is actually easier to measure electricity because of this clear measurement structure. Your business energy bill gives you a breakdown of the number of kilowatts used and the rate for each kilowatt, enabling you to check that it is correct. Be aware, however, that there are other charges included.

Working from home and business energy

If you work from home then your energy usage is likely to be higher as you will need to run your computer, internet connection, heating, lighting and so forth. You should factor in these extra costs if you work from home. HMRC allows for a percentage of your tax bill to be written off as expenses if you work from home. The gov.uk website provides a description as to how these expenses are broken down. [3]

How is your business energy bill calculated?

It is important to understand the different tariffs featured on your business energy bill so that you can choose the one that works best for you and your working lifestyle.

A variable price tariff changes as the market fluctuates. The amount you pay can vary from month to month depending upon energy tariffs at the time, this means that some months you could be saving if the tariff is lower whilst in other months you could be paying a little more.

A fixed price tariff is used to predict your general energy usage pattern over a longer period and then come up with an average price. This enables you to pay a monthly fixed price so that there are no nasty surprises at the end of the month or contract term.

A price freeze tariff is also variable but similar in principle to a capped or fixed-rate mortgage in that the amount you pay will not exceed a certain amount, giving you peace of mind. This is a useful tariff if you know how much your business uses each month.

A no standing charge tariff excludes any extra ‘flat cost’ fees that suppliers may charge, meaning that you only pay for the energy used. This saving may be added on to your kWh unit price which might be set at a slightly higher level to compensate.

In light of recent environmental and energy consumption concerns, new packages have also appeared on the market in the form of ‘green tariffs’, these tariffs tend to offer incentives for you to cut your energy usage. They may come in the form of matching your energy usage with renewably sourced energy or might include a percentage of your bill going towards environmentally forward-thinking projects.

What does C mean on an electricity bill?

You may see a number of abbreviations on your business energy bill and wonder what they mean, the ‘A’ for example refers to a reading taken by the energy company, with an ‘E’ meaning estimated. The ‘C’ is usually put against any readings you have sent into the energy company, so ‘C’ stands for customer.

What does your electricity bill include?

You may think that your electricity bill simply includes some administrative charges, standing charges and then your energy usage. It’s not quite as simple as that! The bill also contains an amount towards the environment, VAT, transmission and distribution fees and larger-scale energy supply fees.

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