If you lease or own premises for your business, it’s likely that you’ll need to pay business rates. These rates are taxes, which are either paid by the leaseholder of the building, or the company occupying the property.
Sometimes, business rates can be difficult to understand. With that in mind, here is a comprehensive guide, outlining the key points about the rates, and how they work in practice.
Business rates: the basics
In simple terms, most companies pay business rates for their premises. This isn’t just limited to shops and offices; it also applies to holiday homes, bed & breakfast hotels, pubs, factories and more. A few premises are exempt from business taxes; such as care homes for disabled people, or farm buildings.
The local council usually send businesses a bill for the rates every February or March. This bill covers the charges for the following year, so essentially, you’re paying a year ahead.
What will you pay?
The amount you’ll be charged depends on what’s called the ‘rateable value’ of the property. This is its rental value on the open market, and would have been determined back in April 2015, by the Valuation Office Agency (VOA).
Some of the assets in the property will be taken into account as part of the valuation. This may include machinery, or security equipment, such as CCTV or an alarm system. The rateable value of a business building should ideally be reassessed every five years. As it stands, the next revaluation will be undertaken by the VOA in 2021.
If you believe that the current rateable value of your premises is incorrect, then you have the right to request a revaluation. You can also check the property’s current valuation here.
The term ‘multiplier’ refers to the pence per pound of rateable value you’ll pay in business rates, prior to any reliefs or discounts being taken into account. Effectively, this means that, in order to calculate the business rates that you owe, you’ll need to multiply the rateable value of the premises by a multiplier, which is determined by the government.
These multipliers are variable, depending on whether you’re a small business or a national enterprise. It’s also useful to note that Wales and the City of London have different multipliers.
Small business rate relief
Some companies may be eligible for small business rate relief. In some instances, you may not have to pay any rates at all.
If your premises have a rateable value of £12,000 or under, you won’t have to pay business rates. If the rateable value is between £12,001 and £15,000, the rate of relief is reduced, depending on the exact value of the property. As an example, if the premises were valued at £13,500, your business rates bill would be reduced by 50%.
If you secure a second premises for your company, you’ll be able to claim relief on your first property for a year. After this, the rateable value of your extra premises needs to be under £2,899 in order to continue to be eligible. The combined rateable value of your properties will need to be less than £20,000 outside London, or £28,000 if you’re operating in London.
To apply for small business rate relief, you’ll need to get in touch with your local council.
In addition to small business rate relief, you may also be eligible for transitional relief. This limits how much your rate bill can be changed each year, after your property has been revalued. Transitional relief can be helpful, as it means the financial changes are phased in over time, and you can avoid paying an unexpectedly larger amount than you were previously.
Changes to circumstances
If you decide to move premises, it’s possible that your business rates will change. It’s your responsibility to notify the Valuation Office Agency if this occurs.
The same applies if you:
- Sublet part of the property to another business
- Merge two or more buildings into one
- Change the nature of your business
- Make significant changes to your premises
If you don’t report the changes, there’s a risk that you’ll be given a backdated bill, in addition to what you would usually owe.
If your business is adversely impacted by an event that’s out of your control (for example, if serious roadworks mean that people can’t reach your premises easily, or if flooding prevents you from operating for a period of time), then you may be granted a temporary reduction in business rates. Again, any incidences like this should be reported to the VOA service.
Common questions and answers
- What happens if I work from home?
If you run your company from home, it’s unlikely that you’ll have to pay business rates. However, there are exceptions to this. For example, if your business is run from a shop that’s situated within your property, you’ll need to pay business rates. The same applies if you sell any goods or services to customers that visit your property, or if you employ people to work for you at your home. If you’re unsure if you need to pay the rates or not, it’s worthwhile getting in touch with the VOA to check.
- What about pubs?
With pubs, the annual turnover is also taken into consideration, plus the services that it offers its customers (e.g. a restaurant as well as a bar). When valuing the premises, the VOA examine the earnings and rent, then apply a percentage (pre-agreed with the British Beer and Pub Association) to the rateable value.
- What about renting a property as a short-term let?
If your property is available to rent for 140 days a year or more, the VOA categorises it as a self-catering home. As such, you’ll have to pay business rates on it. In Wales, the rules are somewhat different. Business rates only apply if the property is available to rent for 140 days or more, and if it’s actually rented for 70 days or more. Scotland has different rules too.
- What do I do if I want to close my business?
As with any other change of circumstance, you’ll need to alert the VOA.