Understanding how to calculate your energy costs is essential for small businesses. It helps with budgeting, identifying savings opportunities, and negotiating better deals. While energy bills can appear complex, breaking them down into their key components makes it easier to see exactly what you’re paying for.
What makes up your energy bill?
Business energy bills usually include:
- Unit rate (kWh) – the cost per kilowatt-hour of electricity or gas your business uses.
- Standing charge – a daily fee to cover network and supply costs, paid regardless of usage.
- VAT – usually 20%, but some small businesses may qualify for 5% if usage is low or if energy is partly used for domestic purposes.
- Other charges – such as government levies, environmental schemes, and Climate Change Levy (CCL) for non-domestic energy use.
Step-by-step: calculating your small business energy costs
1. Work out your usage
Check your meter readings or bills for your annual consumption in kilowatt-hours (kWh). If you’re a new business, use industry averages:
- Small office: 10,000–15,000 kWh electricity per year
- Small shop: 7,000–11,000 kWh electricity per year
- Small café: 15,000–25,000 kWh gas per year
2. Multiply by your unit rate
If your unit rate is, for example, 30p per kWh for electricity and your business uses 12,000 kWh annually, your energy usage cost is:
12,000 x £0.30 = £3,600 per year
3. Add standing charges
If your standing charge is 50p per day, that adds:
£0.50 x 365 = £182.50 per year
4. Apply VAT and levies
Add 20% VAT (or 5% if eligible) and any government charges such as the CCL. This gives you the total estimated annual bill.
Example calculation
- Annual usage: 12,000 kWh at £0.30 = £3,600
- Standing charge: £0.50 per day = £182.50
- Subtotal = £3,782.50
- VAT at 20% = £756.50
- Total = £4,539 per year
Tips to keep costs down
- Compare suppliers regularly to find better tariffs.
- Install smart meters to track consumption more accurately.
- Identify energy-hungry equipment and invest in efficient alternatives.
- Train staff to adopt energy-saving practices.
Final verdict
Calculating your small business energy costs doesn’t need to be complicated. By understanding unit rates, standing charges, and consumption levels, you can estimate your annual bills with confidence. Once you know your costs, you’ll be in a stronger position to cut waste, negotiate contracts, and improve your bottom line.
FAQ – How to calculate energy costs for my small business
You can lower kWh consumption by switching to LED lighting, servicing heating and cooling systems regularly, and encouraging staff to turn off equipment when not in use. Even small changes add up over time.
On average, a small business spends £3,000–£7,000 per year on electricity and gas, depending on the sector. Costs vary based on location, usage, and the contract agreed with the supplier.
Yes. If your business uses less than 33 kWh of electricity or 145 kWh of gas per day, or if part of your energy use is domestic (e.g., in a guest house), you may qualify for 5% VAT.
A standing charge is a fixed daily fee paid to cover the cost of maintaining the energy supply network. It applies regardless of how much energy your business consumes.
Yes. Smart meters give real-time usage data, helping businesses track consumption patterns and identify inefficiencies. This visibility can make it easier to reduce waste and negotiate better tariffs.