Business vs domestic energy: which do you need?

Business and domestic energy are sold under different rules, with different tax, different contract types and different consumer protections. Which one you need depends on how the premises are used, not on how small you are.

The short version

• Shop, café, office, workshop, salon, unit: business energy contract.
• Working from home in your own house: usually a domestic contract, but tell your supplier and check its terms.
• Home with part of it used as a proper business space (a separate studio, a farm yard, a pub with a flat): often mixed use, which is where the problems start. See below.

Ofgem's guidance for businesses says that if you work from home you are probably on a domestic contract, and suggests confirming with your supplier. It does not draw a hard line; what matters is what the supply actually serves.

Working from home and sole traders

If you run a small business from a spare room, your home is still a home. The electricity and gas that supply it are normally on a domestic tariff, and the domestic price cap applies to standard variable tariffs. You do not need a business contract just because you answer emails at the kitchen table.

It changes if the premises become mainly commercial. Examples: a hairdresser who has converted the garage into a salon with customers coming and going, a joiner with a workshop on a separate meter, or a studio you rent. Those supplies should be on business terms. Domestic suppliers' terms on business use differ, so read yours or ask the supplier before assuming you are covered.

Do not try to "hide" a commercial supply on a domestic contract to get a lower rate. The saving is small next to the risk of being moved to a more expensive rate or backbilled.

Is business energy more expensive?

Usually, yes, for three reasons.

1. No price cap. The Ofgem cap covers domestic standard variable and prepayment tariffs only. Business prices are set by each supplier's quote. See why there is no business price cap.
2. Different tax. Business electricity and gas normally carry 20% VAT and the Climate Change Levy (0.801p/kWh from 1 April 2026 for both fuels). Domestic supplies carry 5% VAT and no levy. From 1 October 2026 to 30 June 2027 qualifying domestic electricity in Great Britain is temporarily zero-rated (HMRC first set the end date as 31 March 2027; Budget 2026 extended it), but business use stays at 20%.
3. Standing charges and costs. Business meters usually have larger standing charges, and business contracts can include extra charges for capacity or metering.

HM Government's Quarterly Energy Prices report put the Q2 2026 average non-domestic price at 24.51p/kWh for electricity and 5.28p/kWh for gas, including the Climate Change Levy. Averages hide huge differences between businesses, so use them as a sense-check, not a quote.

Worked example: the tax gap alone

Take a supply costing £2,000.00 before VAT. Business use at 20% VAT adds £400.00, giving £2,400.00. The same bill at the 5% domestic rate adds £100.00, giving £2,100.00. In the temporary zero-rate window for qualifying domestic electricity, VAT is £0.00. On the business side there would also be the levy: at 12,000 kWh a year, 12,000 × 0.00801 = £96.12. That is before any difference in unit rates.

Protections: what changes when you are a business

Domestic customers have the strongest consumer protections. Business customers have fewer, and they scale with size. A microbusiness gets the most: clear Principal Terms, limits on notice periods, a 12-month backbilling limit, and access to the Energy Ombudsman. Larger business customers get fewer. There is also no cooling-off period on business contracts, so a phone agreement can bind you straight away. Read more in what extra protections microbusinesses get.

You can be a microbusiness for one fuel and not the other, and you can qualify through low usage alone: under 100,000 kWh of electricity or under 293,000 kWh of gas a year.

Do I need a business energy contract?

You need one when you take on commercial premises, start trading from them, or move in. If you take over a unit and do not agree anything with a supplier, you are placed on a deemed contract, which is usually dearer than a negotiated deal. Our guide on moving premises and deemed contracts covers it, and setting up business energy for a new business walks through the order of events.

You do not need one for a purely domestic home with a home office. For the specific question, see do I need business energy if I work from home.

Mixed use: the home that is also a business

Common examples are a pub with living accommodation, a farmhouse on the farm's supply, or a shop with a flat above sharing one meter. One meter can only sit on one contract, so the whole supply is usually on a business contract. The tax then follows how the electricity is used: if at least 60% is for qualifying domestic use, the entire supply can be reduced-rated; below 60%, only the domestic share is. A separate meter for the home often makes everything simpler. Our guides to farm and pub energy show how this works in practice.

Common questions from sole traders

Does being a sole trader make me a business customer?

No. Being self-employed does not change the contract for your home. Only the use of the premises does. If you rent a unit, you need a business contract for it, and as a sole trader with fewer than ten staff you will almost certainly count as a microbusiness.

Can I claim some of my home energy as a business cost?

That is a tax question for your accountant or HMRC, not a supplier question. It does not change which contract you are on or what VAT is charged on the bill.

What if I rent a room in a shared building?

Check whether your rent includes energy. If the landlord supplies you through their own meter and bills you, they are reselling, and there are rules on what they can charge. Our landlord guide explains.

Next steps

1. Decide which category your premises falls in, using the checklist at the top.
2. If you are a home worker, tell your domestic supplier and check the terms.
3. If the premises are commercial, get a business contract in place before you start using energy, and compare quotes with our cost calculator and VAT and CCL calculator.
4. Keep your own meter readings from day one.