Energy for a business run from home

Plenty of businesses run from a spare room, a garage, a converted outbuilding or a small workshop next to the house. What contract you are on, and what VAT you pay, usually comes down to how much of your energy use is genuinely business use, not whether you technically run a business at all.

This guide covers when you can stay on a domestic energy deal, when a supplier will expect you to move to a business contract, and what that changes about VAT, price protection and your bills.

Do you need a business energy contract to work from home?

Usually not. Citizens Advice says that if your business is based from home, you’ll usually be a domestic energy customer instead of a business customer. That applies to most sole traders, freelancers and small online businesses working from a spare room or kitchen table, where the extra energy use for the business is small next to normal household use.

A domestic contract also brings protections a business contract does not have, including the Ofgem price cap on standard variable tariffs and a right to switch supplier at short notice without exit fees on many deals.

When will a supplier put you on a business contract?

A supplier is more likely to treat your premises as commercial if:

• the property is used mainly for business rather than as a home, for example a shop, salon, clinic or workshop with a separate entrance
• you have registered the address for business rates rather than council tax
• your energy use jumps because of equipment such as kilns, commercial ovens, server racks, compressors or heavy workshop machinery
• you are VAT-registered and want to reclaim VAT on the business share of your energy, which is easier to evidence on a supply set up for the purpose

There is no single meter reading or percentage that triggers the switch automatically. It is a judgement your supplier makes, often at renewal, based on what you tell them and what the property is used for. If your business use is clearly growing, it is worth telling your supplier rather than waiting for them to notice.

Domestic contract or business contract: what actually differs

	Domestic energy contract	Business energy contract
Price cap	Applies to standard variable tariffs	Does not apply
Typical VAT rate	5% (qualifying/domestic use)	20%, unless low-usage or mixed-use rules apply
Contract length	Often open-ended or short fixed deals	Usually a fixed term, commonly 1 to 3 years
Cooling-off period	Usually available	Not available, even if agreed by phone
Switching	Straightforward, few exit fees on many tariffs	May carry an exit fee if you leave a fixed term early
Who it suits	Homes, and home-based businesses with light energy use	Any premises used mainly for business, or with significant business energy use

Checklist: signs it may be time to move to a business contract

• Your energy use has grown noticeably since you started trading, beyond normal household changes.
• Part of the property is set up specifically for the business, such as a converted garage, shop unit or workshop.
• You are registered for business rates on all or part of the property.
• You want to reclaim VAT on your energy costs and need a supply clearly billed to the business.
• You have installed equipment that draws a lot of power, such as catering equipment, a kiln, compressors or server hardware.
• Your supplier has asked you to confirm how the property is used, usually at renewal.

If several of these apply, it is worth asking your current supplier, or a broker, to quote you on a business contract so you can compare it against staying domestic.

What happens to VAT if you run a business from home?

Most electricity and gas carries 20% VAT for businesses, with a reduced 5% rate for low-usage (de minimis) supplies: electricity up to 33 kWh a day on average, or 1,000 kWh a month, and gas up to 145 kWh a day, or 4,397 kWh a month. HMRC’s VAT guidance also treats domestic-style use as qualifying for the reduced rate.

If you are on a domestic energy contract for a home that includes some business use, you are likely already paying the reduced rate that applies to household supplies. If at least 60% of a supply is qualifying (domestic or de minimis) use, HMRC lets the whole supply be charged at the reduced rate, which is the “mixed use” rule that helps most home-based businesses.

Great Britain also has a temporary zero rate for qualifying electricity from 1 October 2026 to 31 March 2027. Because it only applies to qualifying supplies, a home energy account that already gets the reduced 5% rate is the kind of supply this covers; a full-rate business contract is not.

Worked example: the 60% mixed-use rule

Say a self-employed graphic designer works from a converted loft room and pays one combined electricity bill for the whole house. HMRC’s rule looks at what proportion of that single supply is “qualifying use” (domestic and de minimis business use both count).

• If the household’s normal domestic living, plus the designer’s home office, together add up to at least 60% of the supply being qualifying use, the whole bill can be charged at the reduced 5% rate.
• If a much larger, clearly commercial load were added, for example a separate workshop unit with heavy machinery, and that pushed qualifying use below 60% of the total supply, only the qualifying part could get the reduced rate, and the supplier may need to apportion the bill or move part of it to a business rate.

This is an illustration of how the rule works, not a fixed example you can rely on for your own figures. Your supplier applies the actual rule to your own usage and any VAT declaration you give them; see our guide to VAT on business energy for the full rates and how to give a declaration.

Does the domestic energy price cap protect you?

Yes, but only while you are a domestic customer. The Ofgem price cap sets a maximum for the unit rates and standing charge that suppliers can charge household customers on a standard variable tariff. It does not apply to non-domestic (business) energy contracts at all, whatever the business is or how small it is.

If your supplier later moves your account to a business tariff, that protection stops. You will instead rely on the contract terms you agree, and on the business energy price cap guide for what protection does and does not exist for commercial customers.

Can you claim your home energy costs as a business expense?

If you are self-employed, HMRC lets you claim a share of your home running costs, including gas and electricity, as a business expense. There are two ways to do this:

1. Simplified expenses flat rate. If you work 25 hours or more a month from home, you can use HMRC’s flat rate instead of working out actual costs. This covers heating, electricity and other household bills together, and you do not need to work out a business and personal split yourself.
2. Actual costs. You work out the business proportion of your real bills, for example by floor area, number of rooms used, or hours worked. This can be worth more than the flat rate if your energy costs are high, but you need to keep records to support the figure.

Simplified expenses are only available to sole traders and partnerships with no company partners; limited companies cannot use them and need a different approach, such as charging the company rent for a home office. An accountant can advise on the best method for your situation.

What if your home business uses a lot of power?

Some home-based trades use noticeably more energy than an office job: a bakery with commercial ovens, a hairdresser with multiple heated styling tools, a mechanic with air compressors, a potter with a kiln, or anyone running a server or heavy computing setup. In these cases:

• your electricity use may look unusual next to a typical household, which can flag your account for review at renewal
• you may get a better deal, and clearer VAT treatment, on a business contract sized to your actual usage
• if you run three-phase equipment or need a higher supply capacity, you will likely need a business-grade connection; our what is a DNO guide explains who handles new or upgraded connections

Comparing what a business contract would cost against staying domestic is worth doing once your usage is clearly commercial, using our business energy cost calculator.

What if you have a shop, salon or workshop attached to your home?

Where a business occupies a distinct part of the property, for example a shop below a flat, or a garden workshop with its own supply, it is common for that part to be on a business meter and contract even though you live on site. The residential part can often stay on a domestic supply if it is separately metered.

If the whole building shares one meter, HMRC’s mixed-use rule (see above) looks at the proportion of qualifying use across the whole supply, not at which room the energy was used in. Your supplier can only apply the reduced VAT rate correctly if you tell them how the property and its energy use are split.

How do you compare and switch once you need a business contract?

Once your premises or usage is clearly business use, the process is the same as for any other business: compare rates for your postcode and usage, check the contract length and any exit terms, and give notice if your existing deal requires it. Our guide on how to switch business energy supplier walks through the steps, including what a broker or comparison service needs from you.

As a new business, you will not have twelve months of past usage to base a quote on; our guide for business energy for a new business explains what suppliers ask for instead.

Does your landlord or mortgage matter?

If you rent, check your tenancy agreement before assuming you can run a business from the property at all, since some residential tenancies restrict business use. If you have a mortgage, some lenders also expect to be told about significant business use of the property, separately from anything to do with your energy supplier.

None of this changes how your energy contract works day to day, but it is worth sorting out alongside your energy set-up, particularly if you are converting part of the property specifically for the business or installing equipment that needs a bigger electrical supply.

What to check before you decide

• Ask your current supplier directly whether your account is domestic or business, since this is not always obvious from a bill.
• Work out roughly what share of your energy use is genuinely for the business, even a rough estimate helps.
• If you are VAT-registered, check whether you are correctly getting the reduced rate on qualifying use, or paying the standard rate on a supply that should not be.
• If your usage has grown a lot since you started trading, get a business quote to compare, even if you plan to stay domestic for now.

When you are ready, you can compare business energy quotes with us.

Frequently asked questions