How do I work out my annual business energy cost from unit rate and standing charge?
Multiply your annual kWh by the unit rate, add the daily standing charge times 365, then add Climate Change Levy and VAT at 20% if they apply. For example, 15,000 kWh at 27p with a 60p daily charge comes to about £4,389 before VAT and £5,267 including it.
Add up three things: what you use times the unit rate, the standing charge for every day, and then the extras (Climate Change Levy and VAT). It takes a calculator and your latest bill.
The formula
- Usage cost = annual kWh × unit rate in pounds per kWh (divide pence by 100).
- Standing charge cost = daily charge in pounds × 365.
- Climate Change Levy (CCL) = annual kWh × 0.00801 (0.801p/kWh is the main rate from 1 April 2026, for both gas and electricity), unless you are exempt or below the small-use limits.
- VAT = 20% of everything above, unless you qualify for the reduced rate.
Some suppliers already include CCL in the quoted unit rate and some list it separately. Check the wording on your quote.
A worked example: a small shop
Illustrative rates: 27p/kWh and 60p/day, using 15,000 kWh a year.
| Item | Sum | Result |
|---|---|---|
| Usage | 15,000 × 0.27 | £4,050.00 |
| Standing charge | 0.60 × 365 | £219.00 |
| CCL | 15,000 × 0.00801 | £120.15 |
| Subtotal | £4,389.15 | |
| VAT at 20% | 4,389.15 × 0.20 | £877.83 |
| Total | £5,266.98 |
The effective rate is £5,266.98 ÷ 15,000 = about 35.1p per kWh, which is far higher than the headline unit rate. If you are VAT-registered you normally reclaim the VAT, so your net cost is £4,389.15.
When CCL and the 5% VAT rate may not apply
The reduced 5% VAT rate and CCL relief are available for very small use: up to 33 kWh a day for electricity (about 1,000 kWh a month) or 145 kWh a day for gas (about 4,397 kWh a month). In the example above, 15,000 ÷ 365 = 41.1 kWh a day, so the shop is over the limit and pays the full rates. See the 33 kWh de minimis limit and VAT and Climate Change Levy.
Gas works the same way
If your gas bill is in cubic metres or hundreds of cubic feet, convert to kWh first with our gas units converter. Then repeat the same four steps.
What if the rates differ by time of day or you have several meters?
Work out each rate band separately and add them. For two-rate tariffs, see day and night rates. Do the same for each meter at a multi-meter site.
Skip the arithmetic with our business energy cost calculator or check the tax part with the VAT and CCL checker.
Common slips
The usual errors are using pence instead of pounds, forgetting that the standing charge runs 365 days even when you are shut, and mixing gross and net figures. Another is using a usage figure from a bill that was estimated. If your readings are estimates, the answer will be off, so send a real reading before you do the sums.
Next steps
Use last year's total usage, which is on your bill or via your supplier's portal. Then compare quotes on the same basis, following our page on reading your business energy bill.
Sources
General information only. Energy prices, rules and supplier terms change; check the latest position with your supplier, Ofgem or the Energy Ombudsman before you act.