Business vs Domestic Energy: What's the Difference?
Quick Answer
Business energy is bought on commercial contracts that are not covered by the Ofgem price cap, are taxed at 20% VAT, and are fixed for 1–5 years with no cooling-off period. Domestic energy is price-capped, taxed at 5%, and can be switched freely.
It is the same gas and electricity down the same wires — but business vs domestic energy are two very different products when it comes to price, tax and contracts. If you run a business, knowing the difference protects you from overpaying. Here is what changes.
The key differences at a glance
- Price protection: domestic energy is capped by Ofgem; business energy is not.
- VAT: 5% for homes, usually 20% for businesses.
- Contract length: homes are flexible; businesses fix for 1–5 years.
- Cooling-off: homes get a 14-day cooling-off period; business contracts are binding once signed.
- Switching: homes can switch anytime; businesses switch at renewal or when out of contract.
No price cap on business energy
The Ofgem price cap limits what domestic customers pay per unit. It does not apply to businesses. Your business rate is whatever you negotiate, so two identical businesses can pay very different prices depending on when and how they bought. That is exactly why a whole-of-market comparison matters.
VAT and the Climate Change Levy
Homes pay 5% VAT on energy. Most businesses pay 20%, plus the Climate Change Levy on gas and electricity. Low-usage businesses, charities and domestic-style premises can qualify for the reduced 5% rate — see VAT on business energy bills.
Contracts and cooling-off
Domestic tariffs are easy to leave. Business energy contracts are fixed-term and binding — there is no automatic cooling-off period, and leaving early can mean exit fees. The upside is price certainty: a fixed business tariff locks your rate for the whole term.
Which applies to my premises?
If a property is used mainly to run a business, it belongs on a business contract. Mixed-use premises — such as a flat above a shop — can sometimes split the supply or claim the 5% domestic VAT rate on the living portion. If you have just taken over premises, set up a contract straight away to avoid expensive deemed rates.
Common mistakes to avoid
The differences between business and domestic energy catch a lot of people out. The most expensive mistakes we see:
- Letting a contract lapse. With no price cap, rolling onto deemed business rates can cost 30–80% more. Diarise your renewal window.
- Assuming you can switch instantly. Unlike at home, business contracts are fixed-term — you usually switch only at renewal or when out of contract.
- Missing the 5% VAT relief. Low-usage businesses and charities can claim it but must submit a VAT declaration to the supplier — it is not automatic. See VAT on business energy.
- Using a home tariff for a business. If a property is mainly business use, a domestic tariff can breach the supplier’s terms and leave you without protection.
If you have just changed premises or use, the safest move is a quick business energy quote to confirm the right contract and rate from day one.
Can I reclaim VAT on business energy?
VAT-registered businesses can normally reclaim the VAT charged on their energy through their VAT return, the same as any other business expense — so the 20% rate is often recoverable. Businesses that are not VAT-registered cannot reclaim it, which makes qualifying for the reduced 5% rate more valuable.
Separately, if you qualify for the reduced 5% rate (low usage, charity, or domestic-style premises) you must send your supplier a VAT declaration certificate — it is not applied automatically, and you can usually backdate a claim up to four years. Our VAT on business energy guide walks through eligibility and the form.
Want to know what you should be paying? Compare live business energy prices from every major UK supplier in 60 seconds.
Get a free energy quote → or compare business energy pricesFrequently asked questions
What is the difference between business and domestic energy?
Business energy is bought on commercial contracts that are not covered by the Ofgem price cap, are taxed at 20% VAT, and are fixed for 1–5 years with no cooling-off period. Domestic energy is price-capped, taxed at 5%, and can be switched freely with cooling-off rights.
Can I use domestic energy for my business?
Generally no. If a property is used mainly for business, it should be on a business energy contract. Mixed-use premises (such as a flat above a shop) can sometimes split supplies or qualify for the reduced 5% VAT rate on the domestic portion.
Is business energy VAT 5% or 20%?
Most business energy is charged at 20% VAT. A reduced 5% rate applies if you use under 1,000 kWh of electricity or 4,397 kWh of gas per month, are a registered charity, or use the supply for domestic-style accommodation such as a care home.
Why is business energy not covered by the price cap?
The Ofgem price cap only protects domestic customers. Business rates are negotiated commercially, which is why two businesses on different contracts can pay very different prices — and why comparing the market matters so much.
