Tax & admin 4 September 2020

The complete guide to UK business rates

Shops on a UK High Street
Business rates are the business property equivalent of council tax
When you’re starting or expanding a business, business rates are one of the many unavoidable expenses you should be aware of. Collected by local authorities, business rates are charged on properties not used for domestic purposes.

A small piece of good news to come out of the coronavirus pandemic is that UK businesses operating within retail, hospitality and leisure will not have to pay business rates for the 2020 to 2021 tax year.

The 12-month business rates holiday applies to:

  • Shops
  • Restaurants and cafes
  • Pubs and bars
  • Cinemas and live music venues
  • Leisure properties (e.g. gyms, sports clubs, spas)
  • Hospitality properties, including hotels, guest houses, caravan sites and self-catering holiday accommodation
Estate agents, lettings agencies and bingo halls have also been added to the list of exemptions.

Nurseries on Ofsted’s Early Years Register who provide care and educate under-fives are also exempt, as long as they arent operated by the local authority.

If your business falls under any of these categories your local council will automatically apply your discount, although this may result in a re-issuing of your bill.

This guide answers the following questions, click a link or read on for all the information:

What are business rates?

Business rates are a local tax paid to the local council by occupiers of all non-domestic and business properties. They are the business equivalent of council tax on domestic properties.

Most business properties such as shops, offices, pubs and factories are charged business rates. However, even if a property isn’t used for business purposes, but isn’t classed as domestic could be liable to pay business rates. Sometimes they are charged on a building when a part of it is used for non-domestic purposes.

Local authorities are responsible for charging business rates and bills are issued on an annual basis.

The rateable value of a business premises is set by the Valuation Office Agency (VOA), which acts as an agent to HMRC. Local councils use this rateable value and the government-set business rates multiplier to calculate the amount billed.

Why do you have to pay business rates?

Business rates are collected locally and, although a proportion goes to central government, some of what you pay will be spent locally on services such as:

  • Public transport
  • Street lighting
  • Improving public spaces
  • Emergency services

What is small business rates relief?

The Small Business Rates Relief (SBRR) scheme lowers the amount you are charged, helping to reduce your overheads and free up cash for investment in your business. Some businesses are exempt from having to pay anything at all, yet many business owners don’t even know they may be eligible for rates relief.

Who qualifies for small business rate relief?

If you are a business in England and only occupy one property with a rateable value lower than 15, 000 you are eligible for business rates relief.

A business with a property with a rateable value of 12, 000 or less can get 100% relief. Properties with a rateable value greater than 12, 000 but less than 15, 000 will get a gradually decreasing rate of relief.

As an example, if you have a property with a rateable value of 13, 500 you can claim 50% off your bill. While a property with a rateable value of 14, 000 will give you 33% off.

Should your business also occupy a second property you are able to keep the relief on your main property for a year. You can continue to get this relief on your main property as long as:

  • None of your additional properties have a rateable value above 2, 899
  • The total rateable value of all your properties is less than 20, 000, rising to 28, 000 in London
If you have multiple business properties, the rateable values of all the properties is added together and the relief is applied to the main property.

Your local council will tell you if you qualify for small business rates relief.

If you’re a small business but don’t qualify for small business rate relief and have a property with a rateable value lower than 51, 000 your bill will be calculated using the lower small business multiplier, rather than the standard one. This applies even if you do not qualify for small business rate relief.

How much is the relief rate in 2020?

Each year, the government sets two multipliers:

  1. The relief rate or Small Business Multiplier, which is currently 49.9pence
  2. The Standard Multiplier for other businesses, which is currently 51.2pence
The multipliers may be different in London and Wales.

How to calculate your business rates

To calculate your business rates you first need to know your property’s rateable value. This is determined by its market value on 1 April 2015, based on the estimation provided by the Valuation Office Agency (VOA).

Once you know your property’s rateable value multiply it by the correct multiplier. This will tell you how much you should pay prior to any deductible relief.

For example, if you’re a small business whose property’s rateable value is 10, 000 you would multiply 10, 000 by 0.491p

£10, 000 (rateable value) x 0.491p (multiplier) = 4, 910 (basic business rates)

In this example, since the rateable value is less than 15, 000, it’s likely that relief will be applied to the business rates.

You can check your rateable value and apply for a revision on the government website. Or find the government’s business rates calculator here.

Do I have to pay business rates if I work from home?

If you use only a small part of your home for work purposes, you won’t usually be expected to pay business rates. However, you may become subject to business rates, on top of your council tax, if any of the following circumstances apply:

  • your property is divided into distinct domestic and business parts, for example, a flat above a shop
  • you sell to people visiting the property
  • you employ anyone at your property
If in doubt, contact the Valuation Office Agency or your local council and ask if you should be paying business rates.

What are business rates exemptions?

Certain businesses may be exempt from business rates, in full or in part.

Fully exempt businesses include:

  • Farm buildings and land (excluding offices)
  • Religious buildings
  • Buildings used for the disabled
Although the rules differ depending on location, business rates might be reduced for a variety of reasons. As well as small business rate relief, additional reliefs available include:

  • Rural rate relief
  • Charitable rate relief
  • Enterprise zones
  • Empty buildings relief
  • Hardship relief
  • Transitional relief
Some businesses may be exempt from having to pay business rates, the following rules apply to empty non-domestic property:

Retail property

Empty retail properties can get 100% relief for up to three consecutive months.