If your business uses energy without a contract in place, your supplier charges deemed rates. When a contract ends and you haven't agreed a new one, you may be moved onto out-of-contract rates instead. Both are usually much more expensive than a fixed contract, and you can move off either by agreeing a contract.
Find your supplier's deemed rates.
What is a deemed contract?
A deemed contract is the arrangement your supplier puts you on automatically when you use energy without agreeing a contract first. You never sign it. It's "deemed" to exist simply because you're using the supply.
It usually happens in one of three ways:
- You move into new premises and start using electricity or gas before arranging a contract.
- Your fixed-term contract ends without a new one agreed, and your supplier uses deemed rates for this rather than out-of-contract rates.
- Your supplier goes out of business, and you're moved to a new one.
What are out-of-contract rates?
Out-of-contract rates are what some suppliers charge when your fixed-term contract ends and you haven't agreed a new deal. Unlike a deemed contract, this is something your old contract already said would happen, in the terms you agreed.
Other contracts roll over instead, which means they renew automatically for another fixed term, usually 12 months and often at a higher rate. For microbusinesses, a rollover can't last more than 12 months.
The three at a glance
| When it happens | How long it lasts | What you pay | |
|---|---|---|---|
| Deemed rates | You use energy with no contract in place | Until you agree a contract | Usually far more than a fixed contract |
| Out-of-contract rates | Your fixed term ends with no new deal | Until you agree a contract | Usually far more than a fixed contract |
| Rollover | Your contract renews itself automatically | Another fixed term, usually 12 months | Often more than your previous rate |
How to tell if you're on them
Many businesses only find out when a bill arrives that's much bigger than the last one. It's worth checking for any of these signs:
- Your bill mentions "deemed", "out of contract", "default", "variable", "evergreen" or "rollover".
- Your bill shows no contract end date, or one that has already passed.
- Your rates went up sharply around the date your contract was due to end.
- You moved premises and never agreed a contract with the supplier there.
- Your supplier went out of business, and a new one took over your supply.
- You had a letter or email about renewal and didn't reply to it.
If you're not sure, ring your supplier and ask two questions: "Am I on a fixed contract?" and "When does it end?"
Think you might be on deemed or out-of-contract rates? Our free check compares your rates, standing charges and contract terms with today's market. A specialist will then ring to talk you through it, with no obligation. You don't need a bill to start.
Why they cost more
On a fixed contract, your supplier knows how long you'll stay and roughly how much you'll use, so it can buy your energy in advance at a known price. On deemed or out-of-contract rates it knows neither, and because you could leave at any time, it prices in that risk.
These rates are meant to be a stopgap, not somewhere to stay. How much more you pay depends on your supplier, and many publish their deemed and out-of-contract rates on their websites, so you can compare them with your old contract.
Your rights as a small business
The smallest businesses get the most protection. You count as a microbusiness if you have fewer than 10 employees and a turnover or balance sheet of no more than £2 million. You also count as one if you use up to 100,000 kWh of electricity or 293,000 kWh of gas a year.
If you're a microbusiness, your supplier must:
- tell you your renewal prices before your contract ends;
- give you clear information about your contract;
- limit any notice period to 30 days, if you're on an evergreen contract (one that rolls on until you end it);
- acknowledge your request to end an evergreen contract within 5 working days;
- never roll you over for more than 12 months.
If something goes wrong and your supplier won't put it right, microbusinesses and small businesses can take an unresolved complaint to the Energy Ombudsman. A small business, for this purpose, has fewer than 50 employees and a turnover of up to £6.5 million (or a balance sheet of up to £5 million), or uses up to 200,000 kWh of electricity or 500,000 kWh of gas a year. Citizens Advice can also help with energy contracts.
One thing that catches people out: there's usually no cooling-off period on a business energy contract, even one agreed over the phone. Once you say yes, it's binding, so read the terms first, especially the part about what happens when the contract ends.
How to move onto a fixed contract
If you're on deemed or out-of-contract rates now, compare business energy prices before you agree a new contract.
- Find a recent bill. Make a note of your supplier, your electricity supply number (MPAN) or gas supply number (MPRN), and what the bill says about your contract.
- Check whether you're tied in. Deemed and out-of-contract rates have no fixed term. If you've been rolled over onto a new fixed term, though, check whether leaving early carries a fee and what notice your contract asks for. A microbusiness can leave a rollover at any time without notice or a termination fee.
- Get quotes. Ask your current supplier and others for fixed contracts, then compare the unit rates, the standing charges, the length of the term and what happens when it ends.
- Read the terms before you agree. There's usually no cooling-off period, so make sure you're happy before saying yes, even on the phone.
- Tell your current supplier before the new contract starts, if your contract asks you to.
- Put your new end date in the diary. Set a reminder a few months before it, so you can compare prices while you still have time to choose.
If you're behind on payments, see our guide to disconnection.
Not sure what a fair rate looks like? Our free check compares your rates, standing charges and contract terms with today's market. A specialist will then ring to talk you through it, with no obligation. You don't need a bill to start.
Questions about deemed and out-of-contract rates
What is a deemed contract with an energy supplier?
It's the arrangement your supplier puts you on automatically when you use energy without agreeing a contract, for example after moving into new premises. You don't sign it, and the rates are usually much higher than on a fixed contract.
Can I get out of a business energy contract?
If you're on deemed or out-of-contract rates, there's no fixed term to see out, so you can move onto a new contract. If you're partway through a fixed contract, most suppliers won't let you leave before it ends.
Can I cancel a business energy contract before it starts?
Usually not. Business energy contracts don't normally have a cooling-off period, so once you've agreed, the contract is binding, even if you agreed over the phone.
Is there a limit on how high deemed rates can be?
There's no price cap for businesses, so each supplier sets its own deemed and out-of-contract rates. But Ofgem requires suppliers to take all reasonable steps to make sure their deemed contract terms aren't unduly onerous. If your supplier goes out of business, the supplier Ofgem appoints to take over can charge deemed prices that reflect no more than its reasonable costs of supply and a reasonable profit, for up to six months, and you can leave without an exit fee.
How do I avoid ending up on deemed or out-of-contract rates again?
Make a note of your contract end date and start comparing prices a few months before it. If you're a microbusiness, your supplier must send your renewal prices before your contract ends, so keep an eye out for that letter.
Sources
- Ofgem, get a business energy contract: definitions of deemed, out-of-contract and rollover contracts; the microbusiness definition and protections; no cooling-off period; out-of-contract rates when a fixed-term contract ends without a new deal.
- Ofgem, electricity supply licence, condition 7A: the 12-month rollover limit for microbusinesses (paragraph 7A.12B).
- Ofgem, energy costs if you're not protected by the price cap: business contracts aren't covered by the price cap.
- Ofgem, guidance on supplier of last resort and energy supply company administration orders (21 October 2016): a new supplier's deemed prices limited to its reasonable costs of supply and a reasonable profit, for up to six months.
- Ofgem, what happens if your energy supplier goes out of business: no exit fees for leaving the new supplier's deemed contract.
- Energy Ombudsman, can my business get help from Energy Ombudsman?: the microbusiness and small business definitions.
- Ofgem, guidance on deemed contracts (6 November 2023): suppliers' deemed contract terms must not be "unduly onerous".