The list of taxes, charges and bills you need to keep track of when running your business can seem endless. The first step in fully taking control of your finances is understanding what you need to pay.
If you run your business out of dedicated premises, then business rates will be high on your list of concerns. Below, we take a look at what business rates are, how they are calculated across the UK, and what relief you can apply for.
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What are business rates?
Business rates are a type of tax a UK business pays on the non-domestic property they occupy. It is similar to council tax for domestic properties.
Typically, business rates are paid on commercial properties, such as shops, offices, pubs, warehouses, and factories. However, business rates may also apply for other ‘non-domestic’ uses, such as renting out a guest house or holiday home.
What do you pay business rates for?
The money raised from business rates feeds back into the local economy and is used to help pay for services provided by the council. This includes social care for children and adults, libraries, and waste collection, as well as contributions towards education, housing and transport services.
Who pays business rates and who is exempt?
If you use a building, or even just part of a building, for business purposes then it is likely you will need to pay business rates. The occupier of the property is usually responsible for paying the business rates bill.
You will be exempt from paying business rates for certain types of properties. However, they must meet strict legal requirements to be eligible for exemption. Such properties include:
- agricultural land and buildings, including fish farms
- buildings used for training or welfare of disabled people
- buildings registered for public religious worship or church halls
Who pays business rates, the landlord or the tenant?
If you rent your business premises, then you will need to discuss with your landlord who is responsible for paying the business rates. The bill will usually be in the name of the occupier; and if unpaid it will be the occupier, not the landlord, who action is taken against.
What if the property is empty?
Normally, you do not need to pay business rates on an empty property for the first three months it is unoccupied. After that, however, you will need to pay full business rates, unless:
- they are industrial premises, as they are exempt for a further three months
- it is a listed building, until it is reoccupied
- the property has a rateable value under a certain limit (varies by nation), until it is reoccupied
- the property is owned by a charity, as long as the building’s next use is mostly for charitable purposes
- the property is a community amateur sports club building, and the next use will be mostly as a sports club
It is the responsibility of whoever has the right to occupy the property, whether that is the leaseholder, tenant or freeholder, to pay the business rates on the empty property.
Business rates and working from home
Most of the time, if you are working from home and only use a small part of your property for your business, such as a home office, you will not need to pay business rates. The same is true if you sell goods by post.
However, you may need to pay business rates alongside your council tax if:
- your property is part-business and part-domestic, such as a flat above a shop
- you sell goods or services to people who visit your property, such as a home hairdresser
- you employ other people to work at your property
- you made changes to your home specifically for business purposes, such as converting a garage into a workshop or salon
The rules around business rates and working from home can vary slightly across England, Wales, Scotland and Northern Ireland, so it is important to check whether you should be paying business rates.
If you are based in England or Wales, you should contact the Valuation Office Agency (VOA). If you are in Scotland, you should reach out to the Scottish Assessors Association (SAA). And in Northern Ireland, it is Land & Property Services (LPS).
How are business rates calculated?
Business rates are calculated differently across England, Wales, Scotland and Northern Ireland.
Business rates in England
Business rates in England are calculated by multiplying the ‘rateable value’ of your property by a ‘multiplier’ set by the government.
The rateable value (RV) is estimated by the Valuation Office Agency, and is based on an estimate of your property’s open market rental value on a fixed valuation date. For the 2023/24 tax year, the valuation date is 1 April 2021.
Which multiplier you use is determined by your property’s rateable value. If the RV is £51,000 or more, you use the standard multiplier. If the RV is below £51,000, you use the small business multiplier. For the 2023/24 tax year, the standard multiplier is 51.2p and the small business multiplier is 49.9p.
To calculate your bill, you multiply your rateable value by the correct multiplier, and then minus any business rate relief you are eligible for.
Business rates in Wales
Business rates in Wales are calculated in a similar way to in England. The Valuation Office Agency will estimate your rateable value, and then this will be multiplied by the multiplier, before any relief is subtracted.
However, the Welsh government sets its own business rates multiplier. For 2023/24, the Welsh multiplier is 53.5p.
Business rates in Scotland
In Scotland, business rates are also calculated by multiplying a property’s rateable value by a multiplier, before subtracting any relief you are eligible for.
The rateable value is estimated by a region’s local assessor. Each assessor has its own methods of calculation, but typically it will be based on the rental value of a property.
There are three different tax rates, or multipliers. For 2023/24:
- the Basic Property Rate for properties with a rateable value of £51,000 and below is 49.8p
- the Intermediate Property Rate for businesses with a rateable value between £51,001 and £100,000 is 51.1p
- the Higher Property Rate for properties with a rateable value above £100,000 is 52.4p
Business rates in Northern Ireland
In Northern Ireland, business rates are calculated by multiplying the rateable Net Annual Value (NAV) by the combined non-domestic regional and district rates. Any relief your business is eligible for is then subtracted from this figure.
The Net Annual Value is based on the annual rental value your property could reasonably be let for on the open market. This is estimated by the Land & Property Services (LPS). The current NAV rates are based on rental values as estimated on 1 April 2018.
The non-domestic regional rates are set annually by the Northern Ireland Executive and are applied to each district council area. The district rate is set annually by each district council.
Business rates relief explained
Some organisations and properties may be eligible for business rates relief. This comes in many forms across the UK, and includes:
Small Business Rates Relief (SBRR)
If your property’s rateable value, or Net Annual Value, falls below a certain threshold then you may be eligible for small business rates relief.
In England, you can get small business rates relief if:
- your property’s rateable value is less than £15,000
- your business only uses one property (although you may still be eligible for relief if you do use more than one)
If your rateable value is £12,000 or less, you do not pay business rates. If it is between £12,001 and £15,000, the rate of relief you receive is on a tapered basis from 100% to 0%.
When you buy or lease a second business property, you can keep any existing relief on your first property for 12 months. You can continue to get small business rates relief on your main property if:
- none of your other properties have a rateable value above £2,899
- the total rateable value of all your properties combined is less than £20,000 (or £28,000 in London)
In Wales, you will be eligible for small business rates relief if:
- the rateable value of your property is £6,000 or less, you do not pay business rates
- the rateable value is between £6,001 and £12,000, you will receive relief on a tapered basis from 100% to 0%
Certain business categories, such as post offices and registered childcare premises, are eligible for further relief.
Small business rates relief in Wales is limited to two properties per business in each local authority.
In Scotland, this relief is called the Small Business Bonus Scheme. You are eligible for the discount if:
- the rateable value of your business property is £18,000 or less
- the combined rateable value of all your business properties is £35,000 or less
- the property is actively occupied
If you meet the criteria, the relief is calculated as follows:
- If the total rateable value of an individual property is £15,000 or less, you do not pay business rates.
- If the total rateable is between £15,001 and £35,000, you get 25% relief on each individual property with a rateable value of £18,000 or less.
In Northern Ireland, the scheme works as follows:
- If your Net Annual Value is £2,000 or less, you will receive a 50% rate relief.
- If your Net Annual Value is between £2,000 and £5,000, you will receive a 25% rate relief.
- If your Net Annual Value is between £5,000 and £15,000, you will receive a 20% rate relief.
There is further relief available for post offices.
Certain business properties are excluded from the SBRR scheme. And you are not eligible for small business rates relief if you occupy more than three premises of any size, or are part of a chain.
Rural rate relief
In England and Scotland, you do not have to pay business rates if you are based in a rural area with a population below 3,000, and if you are the only:
- village shop or post office, and have a rateable value of £8,500 or less
- public house or petrol station, and have a rateable value of £12,500 or less
In Scotland alone, you are also eligible for rural rate relief if your business provides a community benefit, and has a rateable value of up to £17,000.
Supporting Small Business Scheme (SSBS)
In England, the Supporting Small Business Scheme will help with the transitional between the new rateable values that will be introduced from 1 April 2023, based on estimates taken from 1 April 2021.
Businesses that will lose their small business relief rate or rural relief rate eligibility due to rising rates will see their bill increases capped at £600 per year from 1 April 2023.
Retail, hospitality and leisure relief
There are a number of relief options available for businesses in the retail, hospitality and leisure sectors.
In England, if you are eligible, you can receive 75% off your business rates bills for the 2023/24 tax year. The maximum amount can receive in relief is £110,000 a year.
In Wales, retail, hospitality and leisure relief is 75% for the 2023/24 tax year, up to a maximum of £110,000 a year.
Transitional Relief Scheme
In England, the amount your business rates will increase following the introduction of the latest rateable values from 1 April 2023 will be capped for the 2023/24 tax year. If your rateable value is:
- up to £20,000 (£28,000 in London), you bills will increase by a maximum of 5%
- between £20,001 (£28,001 in London) and £100,000, your bills will increase by a maximum of 15%
- over £100,000, your bills will increase by a maximum of 30%
When do you pay your business rates bill?
In England, Scotland and Wales, you will normally be sent your business rates bill for the upcoming tax year in February or March. In Northern Ireland, you may not receive your bill until April.
In England and Wales, you will typically pay your business rates bill in 10 monthly instalments, between April and January. However, you also have the option to spread the cost over 12 months.
In Scotland and Northern Ireland, you can pay your business rates bill in one lump sum, or in monthly instalments.
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