All about business rates
First published 21 June 2018 • Updated 03 June 2019
Just as you pay council tax on your home to help fund local services, your business needs to pay business rates to local authorities.
If you operate business premises – and even if you work from home – you need to be aware of business rates. They can be a hefty cost for a small business, so it’s important not to overlook them when working out your business plan.
Here are the basics you need to know to be ready to pay business rates.
What are business rates?
Business rates are a tax levied on business properties. The money collected is channelled by local authorities into services such as police, fire and waste management, in much the same way as council tax.
Just like council tax, business rates are an annual bill paid in ten equal instalments. This means that if you miss a payment you will have to make bigger payments to cover the outstanding amount.
Do I have to pay business rates?
If you use a property for business purposes then in most cases you’ll have to pay business rates on it. This includes shops, offices, pubs, warehouses and factories and so forth, but also holiday properties (that you rent out) and other rental properties.
What about business rates when working from home?
It’s also important to note that if you use a part of your home for business purposes, you may need to pay business rates on the portion of the house you use. This won’t apply if you simply use your bedroom as an office, or sell goods from home. But if part of your home is exclusively used for business, or if customers or staff spend time at the property, then business rates may be chargeable. To find out whether you need to pay, and how much, contact the Valuation Office Agency (VOA).
How do I estimate business rates?
To work out your business rates, you need to know the ‘rateable value’ of your property. This is managed by the VOA, which currently uses the open market rental value of the property on 1 April 2015 to calculate how much you will be charged for business rates.
To estimate how much you will need to pay, multiply the rateable value of your property by your ‘multiplier’ (which tells you the number of pence you will pay per pound of rateable value). Small businesses have a lower multiplier – you can find the one that applies to your business here.
What to do if your business moves to a new property
If your business grows to the point where you need to change your premises or combine two previously distinct properties, you need to report the changes to the VOA. If you don’t do this in time, you may have to pay a backdated increase in your bill.
You must also report any changes in the nature of your business, or if you start subletting part of your property to someone else.
Applying for business rates relief
There are a host of reliefs for certain kinds of organisations, which can give them a discount on business rates. For a small business this can make a crucial difference to your margins, so investigate to see if you qualify for any small business rates reliefs.
Here are a few of the main reliefs:
Small business rate exemption
In England, small business rate relief is available to businesses that only use one property with a rateable value less than £15,000. The relief means that businesses with a rateable value of £12,000 don’t pay at all, and those with a value of £12,001 to £15,000 pay a much lower rate.
Rural rate relief
If you operate in a rural area with a population of 3,000 or less, and you are either the only shop, pub or petrol station with a rateable value above a certain level (£8,500 for shops and £12,500 for the other two property types), you will be totally exempt from business rates.
Charitable rate relief
If you are a local charity or community amateur sports clubs, you could be eligible for an 80 per cent reduction in your business rates.
If you are starting your business in an enterprise zone, or moving your business to one, the council might offer relief on business rates.
There are various other reliefs available, so ask an accountant or financial adviser about others that may apply to your business.
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