If your business depends on having physical location – and we don’t just mean a shop front, but a factory, office, holiday let or café – then you’re sure to have run into the issue of business rates before now. Understanding precisely how these fit into your small business’ budget can be tricky when you’re facing the hundreds of other issues that come with starting a business. So our simple guide is here to help you better understand business rates.
What are Business Rates?
Put simply, business rates are just another sort of tax, one that is placed on commercial properties and assigned to spaces that have been designated for business activities only. These non-domestic rates and taxes are put towards the funding of local services, including education and transportation.
Who do business rates apply to and who is exempt?
Around 1.8 million UK properties are eligible to pay business rates in the UK. Any business that uses, owns or part-owns a building and uses it for commercial purposes will have to pay business rates. There are some business rates exemptions, including:
Agricultural buildings like fish farms
Buildings that serve as the premise to services dedicated to the welfare or training of disabled individuals
Buildings designated as places of religious worship
If your building is empty, you will also be exempt from business rates for three months, after this, you must start paying at the full rate. Empty property rates can vary depending on the nature of your building, ranging from three months to indefinite periods should you fall into the correct category. The particulars of empty building relief include:
Empty industrial property such as warehouses are given an exemption of six 6 months before business rates must be paid
Listed buildings will not be charged business rates until they are reoccupied
Amateur sports clubs or properties owned by charities provided the next occupants will continue to work in this field, will not need to pay business rates while the property is empty
Property with a rateable value of less than £2,900 are exempt while empty
How to Calculate Business Rates
Business rates are reviewed every five years and business rate valuations are calculated based on the size of your property and the way it is used. Using set rates known as ‘multipliers’ it is easy to calculate your business rate. These change with each year, and are set to increase, so it is also vital to keep up to date with any changes to these numbers.
An average business will pay business rates equal to 50% of their annual rent. As such, properties like an actual shop which has a higher rent price will likely incur a higher business rate than a stockroom.
The rateable value of your property is decided by the Valuation Office Agency (VOA), this will be revalued every 5 years to reflect the changes in the property market. With this in mind, business rates in London are notably higher than elsewhere in England.
Business Rates for Small Businesses
While small businesses were never exempt from business rates, business rate relief was available for small businesses that used only one property or had property under a certain value, however, the 2017 revaluation means this will no longer be an option for small businesses.
The grey cloud isn’t without a silver lining, though – businesses operating from buildings worth less than £12,000 in rateable value will be completely exempt from tax rates.
If your property has a rateable value under £51,000 then your business rates are still based on the small business multiplier (which stands at 46.6p rather than the standard 47.9% for the period April 2017 – March 2018), even if you are not eligible for small business relief.
If your business is purely charitable then you may be eligible for discretionary relief of up to 80% or even 100%.
How to Pay Business Rates
Business rates must be paid to the local council, e.g. if your business property is based in Soho, then you must pay Westminster Council business rates direct to them. A bill will be sent to you every year in February or March.
Business rates can be paid for online, and relief or disputes concerning your rates can also be made on the local council website. The Gov.uk website also lists several useful links should you want to better understand your business rates, or seek to have them adjusted.
Business Rates in Scotland
Business rates are calculated slightly differently in Scotland and Northern Ireland compared to England. If your business is located in Scotland, rates will be calculated in a different way, you can use the gov.scot business rates calculator here to work out your own.
Businesses rate relief is available to businesses which run from properties worth less than £35,000 in rateable value.
The 2017 revalue means properties worth less than £15,000 will be exempt from business rates.
Business rates in Northern Ireland
Business rates in Northern Ireland are also different to those charged in England. One notable difference regards working from home. In England, business rates will not be charged unless your business activities at home are beyond working from a spare room, e.g. hiring other people or living above the shop your run. However, in Northern Ireland, business rates might more directly impact those who choose to work from home.
Rates can be calculated here.
This post provides information to help you get started with business rates, but you should seek the advice of a legal or financial expert for your specific needs.