Due to the coronavirus more people than ever are working from home. If you’re running your business from home, it might have crossed your mind that the energy you use is being paid for on a domestic tariff – not a business tariff.
So, are there any advantages to switching to business energy? And are you allowed to switch to a business energy tariff if you’re working from home?
Assessing the cash savings
Businesses pay less per kWh for their electricity and gas than domestic customers, and the larger the business, the lower the rates.
However, there’s a little more to it than that.
Domestic energy tariffs have a 5% VAT rate while business tariffs typically have a 20% VAT rate. This higher VAT rate increases the cost of a tariff.
Also, if your business is not VAT registered, then it won’t be able to reclaim the 20% VAT, so the cost will need factoring into your comparison.
- The 20% VAT rate does not apply if you use less than an average of 3 kWh of electricity and 145 kWh of gas a day. If you’re working from home, this will be well within your limit, so you’ll pay the 5% VAT rate.
Another added cost is the Climate Change Levy or CCL. This is an environmental tax on traditional energy that businesses are obliged to pay. It is designed to encourage a reduction in carbon emissions across the energy sector.
The rate is 0.541p per kWh for electricity and 0.188p per kWh for gas. The charge gets added to your bill by your supplier automatically.
- The CCL charge does not apply to renewable energy. So, if you switch to 100% renewable business energy, no CCL charge is applied.
- If you use less than an average of 3 kWh of electricity and 145 kWh of gas a day, there is no CCL charge to pay for your energy.
Cash savings – the bottom line
If you are working from home or running your business from home and you use less than an average of 3 kWh of electricity and 145 kWh of gas a day, you won’t have to pay a CCL charge and you will qualify for the lower VAT rate of 5%.
This means you can benefit from the lower prices per kWh a business energy tariff offers without worrying about any added costs.
Even more impressive is that green energy can be cheaper than traditional energy, allowing you to slash your carbon footprint AND save money.
Can I switch to business energy working from home?
Yes is the short answer.
The slightly longer answer is that to qualify for business energy working from home, you need to fall into the class of a ‘micro business consumer’.
Micro business consumers, as defined by Ofgem, employ fewer than 10 employees and have an annual turnover or balance sheet no greater than €2 million.
To qualify for micro business energy tariffs, you must meet the criteria above, or use no more than 293,000 kWh of gas or 100,000 kWh of electricity a year.
This means there are three ways to qualify as a micro business consumer:
- Have a turnover no greater than €2 million and less than 10 employees
- Use no more than 293,000 kWh of gas a year
- Use no more than 100,000 kWh of electricity a year
If you meet one of these criteria, you can switch to a business energy tariff and include these bills in your bookkeeping.
Some suppliers may also want a breakdown of your energy use, wanting at least 50% of your energy used for business purposes.
That might sound like a lot, but lighting, heating and powering a computer all count towards the golden number and will tip you over it. It’s also important to point out there’s no way to prove how you use your energy, so you can make it up.
Should I switch?
You might have noticed that business energy tariffs tend to be cheaper than domestic tariffs. This is because business energy rates are based on business size and energy consumption – and if you’re working from home, you will qualify as a micro business, with these businesses having access to lower rates.
You could reasonably expect to save £150 or more per year on your electricity and gas by switching to business energy as a micro business consumer.
In addition to the cash savings, switching to business energy offers these benefits:
- It’s tax deductible – you can include your micro business tariff in your accounts as an expense for the duration of your contract.
- Access to more green energy – you can switch to green energy with a wider range of suppliers than you could as a domestic customer.
- Fixed and variable tariffs – you can choose from either a fixed or variable business energy tariff to suit your needs.
- Access to better rates if you have a bad credit score – if you have a bad personal credit score, the good credit score of your business can help you access better rates than you ever could with a domestic energy tariff.
In our opinion, so long as you qualify as a micro business consumer, dip under the 20% VAT rate and skip the CCL charge, switching is a no-brainer. You’ll save money, and if you switch to renewable energy, you’ll slash your carbon footprint as well.