Am I a micro-business? What does this means for my business energy contract?
The Office of Gas and Electricity Markets (OFGEM) recognises that micro-businesses sometimes need a helping hand to navigate the energy market. And hence, they ensure that energy suppliers give an extra level of assistance and protection to these companies. If you are classified as a micro business, then you can expect some great benefits. But first, what is a ‘micro-business’?
How does Ofgem define a micro-business?
Ofgem defines a micro business as one that meets any one of the following criteria:
1) Employs fewer than ten employees and has an annual turnover or balance sheet no greater than €2 million
2) Uses no more than 100,000 kWh of electricity per year
3) Uses no more than 293,000 kWh of gas per year
As a guide, a company using 100,000 kWh of electricity or 293,000 kWh of gas will pay £10,000-£12,000 a year for each type of fuel.
But what does this all mean? What extra protection can you expect as a micro business?
Microbusinesses benefit from Ofgem regulation 7A
The Standard License Condition 7A (SLC 7A) governs contractual relationships between suppliers and micro-business energy contract. If you’re a micro business, then energy suppliers must abide by its controls. The regulation covers four key sections (although they do overlap):
1) Contract Clarification – Suppliers must take steps to ensure that businesses know and understand their contract. This includes providing clarity on the duration, price, and exit terms of the deal.
2) Ability to prevent roll-overs – Your supplier must write or email to you at least 30 days before the contract renewal deadline. And they must show the terms of the renewed contract and deadlines for accepting/rejecting it. Large companies are expected to remember this themselves.
3) Preventing suppliers from changing terms – Ofgem prevents suppliers from changing a contract if they believe you are no longer classified as a micro business. They must honour the fixed-term contract they offered you, no matter how big your company grows.
4) Plain and intelligible language – Energy suppliers love to confuse their customers with complicated jargon. But, if you’re a micro-business, then Ofgem requires the suppliers to send information in plain and intelligible language as defined on their site.
As well as this specific regulation between suppliers and micro-business energy contracts, Ofgem has also extended several domestic provisions to cover micro-businesses as well.
Domestic regulation that you can benefit from as a micro business
Sometimes suppliers incorrectly estimate and charge for your energy. If later they discover you’ve underpaid for your energy, then they will back bill you for this payment. There are stories of companies having to pay for years of incorrect billing. Sometimes this can be hundreds of thousands of pounds. Thankfully, Ofgem recognises that both households and micro-businesses cannot accept this burden. It could break them. As a result, energy suppliers can only back bill micro-businesses for the previous 12 months. Suppliers will write off any bills older than this.
The ombudsman is a free and independent scheme that investigates complaints about suppliers. Larger companies must settle disputes via expensive court procedures. But households and micro-businesses can use free ombudsman to resolve any disputes. The ombudsman has powers to force suppliers to take action. This could include correcting a problem, apologising, explaining what happened, or making a financial award. The ombudsman’s decision is final and cannot be disputed by the supplier.
Lower VAT Rate
Households are charged only 5% VAT for electricity and gas. Large companies pay the standard 20%. If your company uses less than 33kWh of electricity or 145kWh of gas per day, then your VAT can be reduced to 5%. Many micro businesses will use more than these thresholds. But if you fall below them, then you could be saving yourself a tonne of money in tax.
At Tritility we understand microbusiness regulations and the benefits that these could bring to your business. If you believe you’re a micro-business, then please get in touch. We’re always happy to help, whether you are a client of ours or not.