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.
If your business depends on having a physical location, then you’re sure to have run into the issue of business rates before now. Whether you have a shop front, factory, office, holiday let or café, you’ll be expected to pay business rates in the UK. Understanding how to work business rates into your small business’ budget is just one of the things you’ll have to consider when starting a business.
Our simple guide is here to help you better understand UK business rates, which vary slightly in England, Scotland, Northern Ireland and Wales. Read on to find out everything you need to know.
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. 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?
Any business that uses, owns or part-owns a building and uses it for commercial purposes will likely have to pay business rates. Some buildings have business rates exemptions. This may include:
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, there is often an exemption from business rates for a set period. Three months is a common exemption period and after this you may have to start paying at the full rate. Depending on the nature of your building, you may be exempt for longer. Empty buildings that may qualify for longer exemption periods include:
Empty industrial property such as warehouses may be given an exemption of six months before business rates must be paid
Listed buildings are not usually charged business rates until they are reoccupied
Amateur sports clubs or properties owned by charities will not generally need to pay business rates while the property is empty, provided the next occupants will continue to work in this field
Property with a rateable value of less than £2,900 are usually exempt while empty
Business Rates Relief and COVID-19
As a result of the COVID-19 pandemic, businesses in the retail, hospitality and leisure sectors in England were exempt from paying business rates from April 2020 to June 2021.
For the remainder of the 2021 to 2022 tax year, this discount gives retail, hospitality and leisure businesses 66% off their business rates bills, up to a total value of £2 million – or £105,000 if your business legally opened during the January 2021 national lockdown.
Looking ahead to the 2022 to 2023 tax year, the government has announced there will be 50% relief for eligible retail, hospitality and leisure properties, up to a maximum of £110,000. There will also be additional improvement relief, renewable energy exemption, and the relief for low-carbon heat networks available – though the details are yet to be confirmed.
How to calculate business rates
UK business rates are usually reviewed every five years – though this is set to change to every three years in England with the next revaluation in 2023. Business rate valuations are then calculated using set rates known as ‘multipliers’, based on the size of your property and the way it is used.
While these multipliers usually change each year, the Government has recently announced the business rates multipliers for the 2022 to 2023 tax year will be frozen. This means the standard multiplier will remain at 51.2p and the small business multiplier will remain at 49.9p.
On average, a business will pay business rates equal to 50% of their annual rent. As such, properties like a 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) to reflect changes in the property market. With this in mind, business rates in London are generally notably higher than elsewhere in the UK.
Business rates for small businesses
Your small business may qualify for small business rate relief. This is usually the case if:
- your property’s rateable value is less than £15,000; AND
- you only use one property.
If you have more than one property, you can still get relief. In England, you need to make sure the total rateable value of all your properties is less than £20,000 – or £28,000 in London – and none of your secondary properties have a rateable value above £2,899.
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 49.9p rather than the standard 51.2p for the period April 2021 – March 2022, and April 2022 – March 2023), 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
In England 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 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 Wales
Business rates in Wales follow a similar – if not identical - model to those in England, with your local council sending out an annual bill in February or March. The main difference is the business rate multiplier.
For the 2021 to 2022 tax year, the Welsh Government has frozen the set multiplier at 53.5p, so your business rate bills shouldn’t increase. You can find out more about business rates and relief in Wales here.
Business rates in Scotland
If your business is in Scotland, non-domestic rates will be calculated differently to those in England.
You can use the gov.scot business rates calculator to work out your own.
Businesses rate relief is usually available to businesses which run from properties worth less than £35,000 in rateable value, with properties worth less than £15,000 generally being 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 generally 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 you run. However, in Northern Ireland, business rates might more directly impact those who choose to work from home.
Northern Ireland rates can be calculated here.
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