Fixed vs Variable Business Energy Tariffs (UK): Which Contract Type Should SMEs Choose in 2026?

If you run a UK small business, your energy contract can feel like a “set it and forget it” decision, until the renewal email lands, prices jump, or you spot unfamiliar charges on your bill. The truth is: the best tariff isn’t universal. It depends on your risk tolerance, cashflow needs, usage patterns, and how your supplier structures costs.

This guide explains business energy tariffs in plain English, with a focus on the big comparison SMEs search for most: fixed vs variable business energy tariffs. We’ll also cover business energy contract types (including flexible contracts), hidden cost drivers like pass-through charges, and what to do when your business energy contract ends.

Business energy tariffs explained: the basics

A business energy tariff is the pricing method and contract terms that determine how much you pay for electricity and gas. Your bill is usually made up of:

• Unit rate (p/kWh): what you pay per unit of energy used

• Standing charge (p/day): a daily fee for being connected

• Other charges: network, policy, and metering costs (often included in the unit rate or shown separately as pass-through)

Business energy contract types in the UK (the ones that matter for SMEs)

Most UK small businesses will encounter these main contract types:

1) Fixed business energy tariff (fixed-rate contract)

A fixed tariff locks your unit rate (and often your standing charge) for a set term, commonly 1, 2, 3, or 5 years.

Who it suits:

• SMEs that want predictable bills and stable cashflow

• Businesses that prefer budgeting certainty over chasing the market

• First-time switchers who want a simple “set price” structure

Typical features:

• A set unit rate for the term

• Contract end date (renewal matters a lot)

• Early exit fees if you leave before the term ends (often applies)

2) Variable business energy tariff (deemed / out-of-contract / rolling)

A variable tariff means your price can change, usually with notice. Many SMEs land on a variable rate when:

• They move into new premises without arranging a contract

• Their fixed contract ends and they don’t renew

• They’re placed on a “deemed” or “out-of-contract” tariff

Who it suits:

• Businesses needing short-term flexibility

• Businesses waiting to sign a fixed deal (briefly)

• Seasonal operations that might move location soon

Big warning: variable/deemed rates can be expensive compared to negotiated fixed deals.

3) Flexible business energy contract (more common in larger or multi-site setups)

A flexible contract (sometimes called “flex” or “basket” purchasing) is designed to buy energy in chunks over time, rather than locking everything at once.

Who it suits:

• Larger SMEs with higher annual consumption

• Multi-site businesses

• Companies that can handle more complex billing and monitoring

For most microbusinesses, “flexible” as a contract type can feel overkill—but it’s still important to understand, because some suppliers use “flexible” to describe any plan that isn’t a straightforward fixed rate. In this article, when we say flexible, we mean the more structured approach where pricing can be purchased over time.

4) “Blend-and-extend” / renewal renegotiations (a hybrid outcome)

Not always a formal tariff type, but a common renewal option: you extend the term and “blend” remaining costs into a new rate. This can be useful when timing is awkward, but you need to compare carefully.

Fixed vs variable business energy tariffs: what’s the real difference?

When SMEs ask “fixed vs variable business energy tariffs,” what they usually mean is:

• Fixed = budgeting certainty, less admin, you accept you might not get the absolute lowest rate at all times

• Variable = flexibility, but prices can change (and often go up), and you need to monitor more closely

Quick comparison table (SME-friendly)

Pros and cons of a fixed business energy contract

Pros of fixed tariffs

1) Predictable costs
You can forecast bills more confidently, useful for SMEs with tight margins.

2) Easier budgeting and pricing
If you price services/products (e.g., cafés, salons, workshops), predictable overheads help.

3) Protection from sudden price spikes
Even if the market rises, your unit rate stays stable for the term.

4) Often cheaper than “default” variable/deemed rates
Especially if you actively renew rather than drifting out of contract.

Cons of fixed tariffs

1) You can miss market dips
If market prices fall, you’re still paying your locked rate.

2) Early exit fees
Leaving before the end date can trigger charges.

3) Not always “fully fixed” in the way you think
Some costs may be itemised separately (see pass-through charges below).

Pros and cons of a variable business energy tariff

Pros of variable tariffs

1) Flexibility
Useful if you might move premises, close a site, or restructure soon.

2) No long-term lock-in
You can often switch faster (check terms).

3) Potential short-term savings (rare, but possible)
If the market drops and your supplier reduces variable rates, you may benefit, though this isn’t guaranteed.

Cons of variable tariffs

1) Price uncertainty
Harder to plan monthly costs.

2) Risk of being stuck on expensive deemed/out-of-contract rates
This is one of the most common ways SMEs overpay.

3) More admin
You need reminders and monitoring, or costs creep up silently.

Where “flexible” fits: fixed vs flexible business energy contracts (in plain terms)

If your business is big enough to consider it, a flexible contract aims to manage price risk by buying energy over time. Instead of fixing everything on one day, you “average” into the market.

Potential benefits:

• Can reduce the risk of fixing at the worst time

• Can be paired with energy reporting and procurement support

• Useful for high-usage sites where small p/kWh changes matter

Potential drawbacks:

• More complexity (and often more moving parts in billing)

• Requires some attention to purchasing strategy

• Not always worth it for microbusiness usage levels

Rule of thumb:
If you’re a single-site microbusiness with modest consumption, a well-timed fixed contract often gives the best balance of simplicity and predictability. Flexible contracts shine when you have scale, multiple sites, or the time (or partner) to manage procurement actively.

The hidden driver most SMEs miss: pass-through charges business energy

Even when you focus on unit rate, your total cost can still move because of non-commodity costs. Many SMEs first learn this when they compare bills and think: “My unit rate looks fine, so why is my bill still high?”

What are pass-through charges?

Pass-through charges are costs that can be shown separately (or passed through) rather than bundled into a single all-in unit rate. These can include network-related charges and other cost components that vary by region, meter type, and usage profile.

Why they matter for fixed vs variable

• On a fixed tariff, you might assume everything is fixed, yet some plans include pass-through elements that can still vary.

• On a variable tariff, you have the supplier’s changing rate plus any pass-through movement.

How to protect yourself

When comparing quotes, ask (and record) answers to:

• Is the quote fully inclusive (“all-in”) or does it include pass-through charges?

• Are standing charges fixed for the full term?

• Do you have half-hourly metering or a profile that affects network charges?

• What assumptions are included (annual consumption, day/night split, meter type)?

What happens when your business energy contract ends?

This is where a lot of SME overpayment begins.

When a fixed contract ends, one of three things usually happens:

1) You renew (best-case scenario)

You agree a new contract (fixed or flexible) before the end date, ideally with enough time to compare options.

2) You roll onto an out-of-contract variable rate

If you take no action, you may move onto a variable “out-of-contract” or “default” rate. It often costs more than a negotiated fixed deal.

3) You move premises and fall onto a deemed contract

If you move into new premises and don’t arrange supply promptly, you can be placed on a deemed tariff until you agree terms.

The simple action plan (to avoid bill shock)

• 90-120 days before end date: start reviewing usage and renewal options

• 60-90 days before end date: request quotes and compare contract types

• 30-45 days before end date: confirm your decision and complete the renewal/switch

How to choose between fixed vs variable business energy tariffs (SME checklist)

Use this framework to decide quickly and confidently.

Step 1: Confirm your business reality

• Are you staying in the premises for 12+ months?

• Is your energy use relatively stable?

• Do you need predictable monthly costs?

If yes to most: fixed is usually the front-runner.

Step 2: Score your risk tolerance

Ask yourself:

• If prices rose next quarter, would it harm cashflow?

• Could you absorb a 15-25% increase without cutting elsewhere?

Lower tolerance → fixed wins.

Step 3: Consider operational flexibility

Variable may fit if:

• Your lease is short or uncertain

• You expect major changes (renovation, new equipment, business sale)

• You need the option to switch quickly

Step 4: Match contract length to your stability

• 1 year: more flexibility, more frequent admin

• 2-3 years: common “best balance” for many SMEs

• 4-5 years: only if you strongly value long-term certainty and have stable premises

How to negotiate business energy renewal (without becoming an energy expert)

Negotiation isn’t about being aggressive, it’s about being prepared.

1) Know your numbers (the 3 that matter)

• Annual consumption (kWh)

• Current unit rate and standing charge

• Contract end date

2) Improve your “quote quality”

Suppliers price risk. The clearer your data, the more accurate the offer:

• Provide your meter type and MPAN/MPRN if possible

• Confirm business type and operating hours (especially for day/night usage)

• Share recent bills or usage totals

3) Compare like-for-like

Ask every provider the same set of questions:

• Is this rate all-in or are there pass-through charges?

• What are the standing charges and are they fixed?

• What are the termination/exit fees?

• Are there any setup fees or admin charges?

• What happens at the end of the contract (renewal, default rates)?

4) Use timing as leverage

Renewing early (not last-minute) gives you:

• more options

• time to correct errors (meter details, occupancy dates, etc.)

• less chance of falling onto variable rates

Common SME scenarios: which tariff usually fits?

Café, bakery, takeaway (steady daily usage)

Often best: fixed tariff (1-3 years)
Why: predictable costs, consistent operation, narrow margins

Office-based services (variable occupancy, but stable premises)

Often best: fixed tariff (1-2 years)
Why: budgeting benefits; usage is usually predictable

Seasonal business (holiday-let support, seasonal retail)

Often best: short fixed or carefully managed variable
Why: cashflow swings; you may prioritise flexibility, but avoid drifting out-of-contract

Workshop/manufacturing light use vs heavy equipment

Often best: fixed with a careful look at pass-through charges
Why: usage profiles can influence total cost; don’t focus only on headline unit rate

Multi-site SME (retail chain, multiple offices)

Often best: consider flexible contracts or a structured procurement approach
Why: scale makes purchasing strategy and reporting more valuable

Mistakes that quietly increase business energy costs

Mistake 1: Ignoring contract end dates

The biggest cost leak. Put the end date in your calendar 120 days ahead.

Mistake 2: Comparing only the unit rate

Standing charge and pass-through structure can change the real “all-in” cost.

Mistake 3: Not checking your meter type and usage profile

Incorrect assumptions can lead to misleading quotes.

Mistake 4: Switching without confirming occupancy and meter details

New tenants and new premises can create billing confusion—sort the basics first.

Mistake 5: Treating “variable” as harmless

Variable can be fine as a short holding pattern, but drifting for months is often expensive.

FAQ: Fixed vs variable business energy tariffs (UK)

What is a deemed tariff for business energy?

A deemed tariff is a default arrangement that may apply when you take over a premises and start using energy without agreeing a formal contract. It’s often variable and can be costly compared to negotiated deals.

Can I switch business energy suppliers any time?

It depends on your contract terms. Fixed contracts often include early exit fees. Variable/out-of-contract arrangements may allow faster switching, always check your agreement.

Is a flexible energy contract cheaper than fixed?

Not automatically. Flexible contracts can reduce timing risk and suit higher-usage or multi-site businesses, but they involve more complexity and aren’t always better for microbusinesses.

Are standing charges fixed on a fixed tariff?

Sometimes yes, sometimes not, depending on the contract. Always confirm whether standing charges are fixed for the full term and whether any costs are pass-through.

When should I start renewing my business energy contract?

A good rule is 90-120 days before your end date. That gives time to compare options and avoid defaulting onto variable rates.

What should I ask a supplier or broker before signing?

Ask whether pricing is all-in, whether pass-through charges apply, the standing charge amount, contract length, exit fees, and what happens at contract end.