Avoiding Deemed and Out of Contract Energy Rates — How to Protect Your Business in 2026
5-Point Summary
- – Missing your renewal window moves you onto expensive rates automatically
- – Out-of-contract rates apply when a fixed deal expires without renewal
- – Deemed rates apply when energy is used with no contract in place at all
- – Both types typically cost 40 to 60% more than a competitive fixed deal
- – You can switch away from both at any time without penalty fees
Why Deemed and Out of Contract Energy Rates Matter in 2026
Out of contract energy rates UK are one of the most expensive situations a business can find itself in without realising it.
Missing your business energy renewal window is one of the most expensive mistakes a UK business can make. When a fixed contract expires without a replacement in place, your supplier does not disconnect your supply.
Instead, they move you onto a deemed or out of contract rate. These rates are set entirely by the supplier, carry no regulatory ceiling and are typically 40 to 60% above the best available fixed rates in the market.
According to Ofgem’s Non-Domestic Consumer Research 2025, published in May 2026, only 29% of UK businesses switched energy suppliers in the previous 12 months.
The 71% who did not are the businesses most at risk of drifting onto expensive out of contract rates without realising it.
Many businesses do not discover they are on these rates until their bills increase significantly. By that point, the overpayment has already been running for weeks or months.
Unlike billing errors, out of contract rate overpayments cannot be recovered retrospectively. Every day on a deemed or out of contract rate is money permanently lost.
At Kilowatt Energy, the average saving we secure for clients moving from an out of contract rate onto a new fixed deal is between 35% and 55% on their total annual energy spend.
For a small business consuming 20,000 kWh of electricity annually, that saving translates to between £1,820 and £2,860 per year — money that was previously being paid unnecessarily to a supplier charging an uncapped variable rate.
This guide explains exactly how both rate types work, when they apply, how much they cost, and the specific steps to avoid them entirely.
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What Is the Difference Between Deemed Rates and Out of Contract Rates?
Understanding out of contract energy rates UK is the first step to avoiding them. Both rate types result in higher energy bills. But they apply in different situations, and understanding the distinction helps you avoid each one. Read our dedicated guide to out of contract business energy for a deeper look at the out of contract rate specifically.
| Out of contract rates | Deemed rates | |
|---|---|---|
| When they apply | After a fixed contract expires without renewal | When energy is used with no contract in place at all |
| Most common trigger | Missing a contract renewal window | Moving into new premises without arranging a supply contract |
| Regulatory ceiling | None | None |
| Typical premium above fixed rates | 40 to 60% | Often higher than out of contract rates |
| Notice period to switch | None — switch at any time | None — switch at any time |
| Early exit fees | None | None |
| Who sets the rate | Your existing supplier | The supplier already connected to the premises |
| How long they last | Until a new contract is agreed | Until a new contract is agreed |
The key distinction is this: out of contract rates arise when a known contract relationship ends without renewal.
Deemed rates arise when no formal contract relationship has been established at all. Both are expensive.
Deemed rates tend to be higher because the supplier has no consumption history for your business and prices in additional risk accordingly.
Out of Contract Rates — Everything UK Businesses Need to Know
What Are Out of Contract Rates?
Out of contract rates are the variable prices your current supplier applies once your fixed-term energy agreement reaches its end date, assuming you have not arranged a replacement contract.
Your supplier does not need your permission to move you onto these rates. The change happens automatically on the day your fixed contract expires.
These rates are not protected by any regulatory cap. Ofgem does not set a maximum for non-domestic out of contract rates.
The supplier sets the rate entirely at their own discretion and can change it at any time. For a full breakdown of what a competitive rate looks like by comparison, read our average business energy bills guide.
When Does a Business Become Out of Contract?
A business moves onto out of contract rates when any of the following occur:
| Trigger | What happens next |
|---|---|
| Fixed contract reaches its end date with no renewal agreed | Supplier automatically applies out of contract rates from the following day |
| Notice period missed on a contract with rollover clause | Supplier may lock you into a further fixed term at a worse rate |
| New contract agreed, but start date leaves a gap after the old one ends | Out of contract rates apply during the gap period |
| Switch to a new supplier delayed by an objection | Out of contract rates apply at the old supplier while the objection is resolved |
| Business changes legal structure without updating supply agreement | Supply may revert to deemed or out of contract terms |
The notice period issue is particularly important. Many business energy contracts contain clauses requiring written notice of termination 30 to 90 days before the end date.
If you miss this window, the supplier may roll you onto a further contract term rather than simply applying out of contract rates.
This rollover contract is often at a worse rate than you could negotiate in the open market. Read our wholesale vs fixed business energy prices guide to understand how fixed rate contracts are structured.
How Much Do Out of Contract Rates Cost?
The premium varies by supplier and market conditions. As a benchmark based on August 2026 market data:
| Energy type | Competitive fixed rate (Aug 2026) | Typical out of contract rate | Monthly overpayment (small business) | Annual overpayment (small business) |
|---|---|---|---|---|
| Electricity | 24p to 28p per kWh | 35p to 45p per kWh | £92 to £283 | £1,104 to £3,396 |
| Gas | 6p to 8p per kWh | 10p to 14p per kWh | £33 to £100 | £396 to £1,200 |
| Combined electricity and gas | Competitive combined | Out of contract combined | £125 to £383 per month | £1,500 to £4,596 per year |
Based on small business consumption of 20,000 kWh electricity and 15,000 kWh gas annually. Figures are estimates for illustration purposes.
For a medium-sized business consuming 40,000 kWh of electricity annually, the annual overpayment on an out of contract rate compared to a competitive fixed deal can exceed £6,600. Every month without action compounds the loss.
How to Avoid Out of Contract Rates
The simplest way to avoid out of contract rates is to start your search at least six months before your contract ends, compare new contracts early, and secure a new energy deal before the existing one expires.
Preparing early gives you enough time to handle the switch process and ensures there is no gap where high variable rates can apply.
If you are unsure when your current business energy tariff is ending, call your supplier today and ask for your contract end date and the notice period required. Then begin your commercial energy comparison at least three months before that date.
Can You Switch Away From Out of Contract Rates?
Yes. Out of contract rates do not have a fixed end date or a notice period. You are legally free to switch to a new supplier or agree a new contract with your existing supplier at any point.
The only cost you bear is the daily out of contract rate until the switch completes.
Under Ofgem’s Faster Switching scheme, the technical switching process now takes 5 working days.
This means that from the moment you agree a new contract, you could be on a competitive fixed rate within one working week.
The one exception is outstanding debt. If you owe your current supplier more than £500 in electricity or £500 in gas arrears, they can block your switch until the debt is cleared.
Keeping your energy account in good standing is therefore important for maintaining switching flexibility.
Deemed Rates — Everything UK Businesses Need to Know
What Is a Deemed Contract?
A deemed contract is created automatically when a business uses energy at a property without having formally agreed terms with a supplier.
The supplier connected to those premises is legally required to supply you but is not obliged to offer competitive rates.
They apply a deemed tariff that reflects their standard rates for uncontracted supply, which carries a significant premium above fixed-term rates.
Deemed contracts are most commonly encountered when moving into new premises. If you occupy a commercial property and begin using electricity or gas before arranging a formal supply contract, a deemed contract begins automatically from the day of occupation.
When Do Businesses End Up on Deemed Rates?
| Situation | How deemed rates apply |
|---|---|
| Moving into new commercial premises without arranging supply | Deemed contract starts from day one of occupation |
| Previous tenant left without transferring or closing their account | You inherit the existing supply on deemed terms |
| Fixed contract expires with no renewal and no rollover clause | Some suppliers apply deemed rather than out of contract rates |
| Change of tenancy mid-contract without notifying the supplier | Supply may revert to deemed terms during the transition |
| Business acquired as a going concern without reviewing supply contracts | Existing supply arrangements may not transfer correctly |
The property acquisition scenario is particularly worth noting. When a business buys or takes over another business as a going concern, energy contracts do not automatically transfer to the new owner.
If the change of ownership is not notified to the supplier promptly and a new supply agreement is not established, the new occupant can find themselves on deemed rates from day one without realising it.
Why Are Deemed Rates More Expensive Than Out of Contract Rates?
Deemed rates are typically the most expensive tariff type available because the supplier is taking on supply risk without any formal agreement or consumption data to inform their pricing.
They have no trading history with your business, no credit assessment and no agreed payment terms. The deemed rate premium compensates for this uncertainty.
| Rate type | Typical premium above best fixed rate | Regulatory ceiling |
|---|---|---|
| Competitive fixed rate | Baseline | Negotiated |
| Out of contract rate | 40 to 60% above fixed rate | No ceiling |
| Deemed rate | 60 to 80% above fixed rate | No ceiling |
Estimates based on August 2026 market conditions. Actual premiums vary by supplier and market.
How to Avoid Deemed Contract Rates
To avoid being placed on deemed rates, always arrange an energy contract before moving into new premises. Renew your contract within your renewal window ensuring you do not miss the notice period. Be proactive in comparing business energy deals through our commercial energy comparison service to secure a better offer before any current contract expires.
What Are the Alternatives to Deemed Rates?
The best alternative is a fixed-term contract. This allows you to lock in a unit rate and standing charge for 1 to 5 years, providing budget certainty and protection from market movements. See our UK business energy suppliers guide for a full breakdown of fixed contract options by supplier.
Can You Switch Away From Deemed Rates?
Yes, and importantly, more easily than from an active fixed contract. Under Ofgem’s rules, a supplier cannot charge you a termination fee on a deemed contract and cannot require you to serve a notice period before switching. There is no formal contract to exit.
The supplier may attempt to block a switch if there is significant unpaid debt on the account. But they cannot legally prevent you from switching simply because you are on a deemed rate. If a supplier blocks a switch without a valid legal reason, you can escalate to the Energy Ombudsman for a binding ruling.
Kilowatt Energy can arrange a new fixed-term contract and manage the switch from a deemed rate within days. The sooner you act, the sooner the premium stops.
Are There Ofgem Regulations Protecting Businesses on Deemed Rates?
Yes, there are protections in place under Ofgem’s rules to prevent certain excessive practices. These include the right to switch at any time without penalty, protections against disconnection for businesses that are not in significant debt, and obligations on suppliers to notify businesses of the rates being applied.
However, Ofgem does not set a maximum deemed rate for non-domestic customers. The supplier retains full discretion over the level of the premium they charge. Regulatory protections prevent the worst abuses but they do not make deemed rates affordable. The most effective protection remains arranging a formal supply contract before any deemed supply begins.
The Real Cost of Delay — What Every Month on These Rates Costs Your Business
This table illustrates the cumulative cost of remaining on out of contract or deemed rates for different periods. All figures are estimates based on a small business consuming 20,000 kWh electricity annually at a 50% out of contract premium above a 26p competitive fixed rate.
| Time on out of contract or deemed rate | Electricity overpayment | Gas overpayment (15,000 kWh) | Total combined overpayment |
|---|---|---|---|
| 1 month | £217 | £83 | £300 |
| 3 months | £650 | £250 | £900 |
| 6 months | £1,300 | £500 | £1,800 |
| 12 months | £2,600 | £1,000 | £3,600 |
| 24 months | £5,200 | £2,000 | £7,200 |
Estimates based on 50% premium above 26p per kWh electricity and 7.5p per kWh gas. Actual overpayments depend on consumption, supplier and current market rates.
None of this overpayment is recoverable. Unlike billing errors where retrospective claims are possible, out of contract and deemed rate overpayments are simply lost. The only action that stops the cost accumulating is agreeing a new fixed contract.
How to Avoid Deemed and Out of Contract Rates — A Practical Guide
Know Your Contract End Date
The single most important piece of information for avoiding out of contract rates is your contract end date. Many businesses do not know when their current deal expires. If you are unsure, call your supplier today and ask for your contract end date and the date by which you must give notice if you wish to switch.
| Action | When to do it |
|---|---|
| Find out your contract end date | Today if you do not already know it |
| Set a calendar reminder to review | 6 months before the end date |
| Begin market comparison | 3 to 6 months before the end date |
| Agree new contract | At least 1 month before current contract ends |
| Confirm new contract start date matches old end date | Before signing anything |
Open Your Renewal Window Early
The renewal window is the period before your contract end date during which you can agree a new deal without paying early exit fees on your current contract. This window typically opens 1 to 6 months before the end date depending on your supplier.
Starting your comparison early gives you several important advantages. First, you have time to compare the full market without pressure. Second, you can assess whether market conditions are favourable. Third, you have time to resolve any issues such as objections or credit checks without the risk of falling into an out of contract rate.
Kilowatt Energy contacts every client 90 days before their contract end date as standard. This ensures the renewal process begins in the optimal window and no client drifts onto out of contract rates through oversight.
Avoid Contract Gaps
A contract gap occurs when a new supply contract is agreed but the start date does not immediately follow the end of the existing contract. Even a gap of one day results in out of contract rates applying for that period.
| Common cause of contract gaps | How to prevent it |
|---|---|
| New contract start date set too far in the future | Align start date exactly with old contract end date |
| Switch delayed by supplier objection | Begin process early enough to resolve objections before end date |
| Smart meter installation required before new contract starts | Book meter installation well in advance of switch date |
| Incorrect meter information submitted with switch request | Verify all MPAN and MPRN details before submitting |
When Kilowatt Energy manages a switch, we verify all contract dates, meter details and supplier requirements before submission. This eliminates the most common causes of contract gaps.
Moving Into New Premises — Act Before You Move In
If your business is moving into new commercial premises, arrange a supply contract before you take occupation. This is the single most reliable way to avoid a deemed contract.
| Step | Action | Timing |
|---|---|---|
| 1 | Contact the existing supplier at the new premises | As soon as you know the move-in date |
| 2 | Find out whether an existing contract is in place | Before signing a lease or purchase agreement |
| 3 | Take meter readings on the day of occupation | Move-in day |
| 4 | Arrange a new fixed supply contract | Before or on move-in day |
| 5 | Notify your existing supplier at your old premises | Confirm end date and final meter readings |
If there is an existing contract at the new premises belonging to the previous occupant, you are not obliged to take it over. You can notify the supplier that you are the new occupant and arrange your own contract from a supplier of your choice through our commercial energy comparison service.
What Happens When a Switch Is Blocked or Delayed
Even when you take all the right steps, switches can be delayed by supplier objections. Understanding why objections happen and how to resolve them quickly prevents contract gaps from developing.
| Reason for objection | Who raises it | How to resolve |
|---|---|---|
| Outstanding debt over £500 | Current supplier | Clear the debt before switching |
| Current contract has not yet ended | Current supplier | Confirm correct switch start date |
| Meter information incorrect or missing | New supplier | Verify MPAN and MPRN and resubmit |
| Credit check failed | New supplier | Speak to broker about alternative suppliers |
| Multiple meters not all included in switch | Either supplier | Ensure all supply points are included |
If a supplier blocks a switch without a valid legal reason, you can escalate the complaint to the Energy Ombudsman. The ombudsman will investigate and issue a binding ruling. Kilowatt Energy manages the objection resolution process for every client as part of our standard service.
Comparing Deemed, Out of Contract and Fixed Contract Rates
| Feature | Fixed term contract | Out of contract rate | Deemed rate |
|---|---|---|---|
| Unit rate | Locked in and competitive | 40 to 60% above fixed rate | 60 to 80% above fixed rate |
| Standing charge | Fixed for contract term | Variable, no ceiling | Variable, no ceiling |
| Price certainty | High | None | None |
| Notice period to exit | Usually 30 to 90 days within contract | None | None |
| Early exit fees | Yes if leaving mid-contract | No | No |
| Regulatory protection | Ofgem rules apply | Limited | Limited |
| Budget planning | Easy | Difficult | Difficult |
| Best for | All businesses | Nobody | Nobody |
The conclusion from this comparison is straightforward. No business should deliberately choose or remain on out of contract or deemed rates. Both are entirely preventable with proper planning and proactive contract management. If your business is currently on out of contract energy rates UK, contact us today for a free comparison across 30 plus suppliers.
FAQs: Deemed and Out of Contract Energy Rates UK
Q: What is the difference between a deemed rate and an out of contract rate?
An out of contract rate applies when a fixed-term business energy contract expires without a renewal being agreed. The supplier automatically moves you onto their variable out of contract pricing.
A deemed rate applies when a business uses energy at a property without having formally agreed any contract with a supplier at all, most commonly when moving into new premises. Both are significantly more expensive than fixed-term contracts. Deemed rates tend to be higher because the supplier has no consumption history or formal relationship with the business.
Q: Which is more expensive, a deemed rate or an out of contract rate?
Deemed rates are generally more expensive because the supplier has no consumption data or formal relationship with the business and prices in additional risk accordingly. Out of contract rates are applied to businesses the supplier already knows, so the risk premium is slightly lower.
Both are significantly more expensive than any fixed-term contract available in the open market. Deemed rates are typically 60 to 80% above a competitive fixed rate. Out of contract rates are typically 40 to 60% above a competitive fixed rate.
Q: How do businesses end up on deemed energy rates?
Businesses are placed on deemed rates when they move into a property or use energy without setting up a contract in advance. Other triggers include a change of business ownership where energy contracts are not transferred correctly, a fixed contract expiring where the supplier applies deemed rather than out of contract terms, and a change of tenancy where the supply is not formally transferred between occupants.
Q: Can I switch away from deemed or out of contract rates?
Yes. You can switch at any time without penalties, though you will pay the higher rates until the switch is completed. Under Ofgem’s Faster Switching scheme, the switch process takes 5 working days. The only barrier to switching is outstanding debt over £500 on electricity or gas, which gives your current supplier the right to block the switch until the debt is cleared.
Q: How can I avoid out of contract energy rates?
Start comparing suppliers and secure a new contract within your renewal window before your current deal ends. Begin the process at least three to six months before your contract end date.
Kilowatt Energy contacts every client 90 days before their renewal date as standard and manages the entire comparison and switch process. Use our commercial energy comparison service to get started.
Q: Are deemed energy rates regulated in the UK?
Ofgem provides some protections around deemed contracts including the right to switch without penalty and obligations on suppliers to notify businesses of the rates being applied.
However, Ofgem does not set a maximum deemed rate for non-domestic customers. Deemed rates are still significantly higher than fixed-term contracts and the most effective protection is arranging a formal supply contract before any deemed supply begins.
Q: Can I be blocked from switching if I am on deemed rates?
No. A supplier cannot stop you from switching from a deemed rate as no formal contract exists. However, they may attempt to block a switch if you have significant unpaid debt on the account. If a supplier blocks a switch without a valid legal reason, escalate to the Energy Ombudsman who can make a binding ruling in your favour.
Q: How do I know if I am overpaying?
A sudden unexplained increase in your energy bills is often the first sign a business has been moved onto higher rates without realising. You can also call your supplier directly and ask whether you are currently within a fixed-term contract and what the end date is.
Our forensic energy audit service will identify your current tariff type, compare it against the market and identify any additional overcharges as part of the standard review at no upfront cost.