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 aren’t 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.

Should there be a change of ownership in the three-month period, this will not trigger a fresh three-month period since the exemption applies to the property, rather than the person paying the rates.

Short-term occupation (six weeks or less) of a retail property during a three-month exemption period will be ignored. The business rates exemption period will continue and still count towards the total three-month exemption.

This rule is designed to prevent property owners gaining additional rates exemptions through short-term lettings.

If the property is let or occupied for more than six weeks, the exemption will end from the start of that period. However, a new exemption period can be claimed when the property becomes vacant again.

Industrial and warehouse property

Empty industrial properties can claim 100% relief for up to six consecutive months.

As with retail property, short-term occupation (six weeks or less) at any point during the six-month period will be ignored.

Other examples of exemption include:

  • empty properties with a rateable value below a certain threshold
  • empty property where the owner is entitled to possession as trustee under a deed of arrangement
  • empty properties which are owned by someone subject to a bankruptcy order
  • empty property owned by a company subject to a winding up order or a company in administration

Other exempt properties

Other exemptions include:

  • If the property owner is legally prohibited from occupying a property, for example a breach of fire safety or when a prohibition notice has been served
  • If the property can’t be occupied due to action taken by a public authority, for example due to health and safety rules
  • Listed properties

Zero rating

Some property may be “zero rated” if the property is empty if the owner is:

  • a charity, as long as it appears that once the property is re-occupied, it will continue to be used mainly for charitable purposes
  • community amateur sports club (CASC), as long as it appears that once the property is re-occupied it continue to function primarily for community amateur sports

Zero rating will not apply to empty properties held by charities or CASCs if they are intended to be used for other purposes.

How does a business evaluation and re-evaluation work?

Revaluation now happens every three years, with the next revaluation set to happen in 2021. Revaluation used to happen every five years, and last happened in England and Wales on 1 April 2017, based on rateable values from 1 April 2015. However, in his 2018 Spring Statement, then Chancellor Phillip Hammond confirmed that revaluations would now run on a three-year cycle.

At revaluation all properties are assigned a new rateable value and multipliers are also revised.

If you want to check your valuation is accurate, contact the Valuation Office Agency (VOA) and ask for up-to-date rental evidence for your property at the time of revaluation.

Paying your business rates

Your local council are responsible for billing you for business rates. They will issue your annual bill in February or March each year. The bill will detail how to make your payment.

Should you have any questions regarding you bill you should contact your local council.

If you pay business rates, they are an allowable expense so don’t forget to add details of your payment on your annual tax return.

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