If you own a business of any size in the UK, you will know that there are many expenses and overheads that can diminish your profit margin. While some costs are within control, such as payroll, the amount of paper the company uses or the marketing budget, one critical expense that is often not in your control is business rates, which is a tax on the right to occupy commercial property. They can equate to as much as 50% of your annual rent and may end up being one of your most considerable overheads.
But how are business rates calculated? And are there any ways in which to reduce the amount that you have to pay? In this article, we’ll discuss all of this and more, giving you further insight into what is required from you as a business owner when it comes to business rates.
What are business rates?
Business rates is the tax on a business’s right to occupy a commercial property. It can be likened to the way in which residents need to pay council tax to local authorities, as both of these taxes are used to help fund local services and amenities. While there are some exclusions, that we’ll get to later in this article, most business owners occupying a commercial property will need to pay some form of business rates.
How do I know if I have to pay business rates?
If your business occupies a commercial or non-domestic property in the UK, you’ll be expected to pay business rates. The person responsible for paying business rates is the occupier of the property, which could be the occupier or the leaseholder.
Even in cases where half a property is used for residential purposes and the other half is used for commercial purposes, you will still need to pay business rates for the occupation of the commercial half of the property. This is the case for shops with flats above them and many other similar properties.
Even if you work exclusively from home, you may be required to pay business rates on the part of your home that you use for your work. For example, if you have a study room used exclusively for work purposes or a room has been adapted or renovated so that it can be more suitable for the type of work you do.
So basically, no matter where you work from, you will most likely have to pay business rates! However, we will be discussing the exceptions in a bit.
How often do business rates need to be paid?
Business rate bills have an automatic payment schedule that works on a 10-month cycle. Because the amount can often be so hefty, it has proved difficult for some business owners. This is why the government has put certain regulations in place that allow for business rates payers to make their business rate payments in 12 monthly instalments instead.
Defining multipliers and rateable value
Before we look into how you could estimate your business rates, it’s important that you have a strong understanding of multipliers and rateable value, as these two factors play a significant role in working out the amount of your business rate.
Rateable value is quite an explanatory term. It refers to the value of a commercial property of which rates can be taxed. And who determines the value of a property? The Valuation Office Agency determines premises values, and the value is based on probable annual marked rent as well as the size of the property. Rateable values are reviewed every five years so that they are current. Obviously, the higher your rateable value is, the more you can expect to pay in business rates. The Valuation Office Agency provides an online facility that allows you to check your property’s rateable value.
What if you disagree with the rateable value that has been given? You’ll need to register for the VOA’s check and challenge service, claim your property, and add it to your account. From there, you’ll have to confirm your property details before challenging the rateable value. They may or may not make amendments based on your challenge, and if you are still not happy, you can always appeal the outcome.
The most recent re-evaluation took place in April of 2017.
When talking about the multiplier with regards to business rates, what is being discussed is the number of pence per pound of rateable value that you will need to pay in business rates. This is before any discounts or reliefs have been deducted. And where do these multipliers come from? They are decided on by the government and are reviewed each year to be in line with inflation. There are, in fact, two multipliers. First, there is a multiplier for commercial properties with a rateable value of £51,000 and below. Then there is a multiplier for commercial properties with a rateable value of above £51,000.
The multiplier used on commercial properties <£51,000 for 2022 and 2023 is 50.2p, and for properties >£51,000 the multiplier is 51.5p in England. Other parts of the UK have their own multipliers.
The multiplier may also be referred to as ‘poundage’ in certain cases.
Using rateable values and multipliers
Multiers and rateable values are used in calculating your business rates. To work out your business rate, you need to multiply your business’s rateable value by the multiplier that applies to your business.
How to get an accurate estimate of your business rates
- The first thing you need to do is get your property’s rateable value by using your postcode in the VOA’s search option.
- Now find the correct multiplier for the size of your business and where your business is located in the UK.
- Once you have these two numbers, you multiply your rateable value by the multiplier to get an estimate for your business rates!
Why is it important to estimate your business rates
The reason why it’s important to calculate your business rates yourself and have an estimate is to make sure that you are paying the correct amount. Mistakes can easily happen, and you can always challenge your rateable value with the VOA if you feel it is wrong, or speak to your local council if you feel the calculation is wrong. You don’t want to be paying too much!
Another reason it’s a good idea to calculate your estimate is so that you can effectively plan for the financial year. This calculation may also come in handy when you are looking at moving properties and want to know what your new business rates would be.
How to pay business rates
Paying your business rate bills is a very simple process. How it usually works is that your local council will send you your business rates bill sometime in March or April. In most cases, local councils will request that you pay your business rates in equal monthly instalments. Payments are usually required to be made on or before the first of each month.
If you ever start a new business or move locations, you should always inform your local council and ensure that they are aware so that you will be charged the correct amount.
What happens if you think the amount is incorrect? This is where having an estimate in mind is so important. If you think the amount is incorrect, you can contact your local authority and speak to them about it. If you are struggling to pay your business rates bills because of cash flow, you should also speak to your local authority as they may be able to change amounts and dates around your business rates.
What happens if I don’t pay my business rates?
You should definitely not think that you can easily get away with not paying your business rates. If you do not pay your business rates for an extended amount of time, you could be in for some trouble.
If you do not pay your monthly instalment by the first of the month, you will usually be sent a reminder by your local authority and be given seven days to get the payment in order. You may also lose the right to pay in instalments in the future and may have to pay the full amount in one go, which could be very difficult for your business.
If you do not pay the business rates amounts, you could receive a Summons to appear in the Magistrates Court. You will incur court costs and you’ll need to pay your full business rates. If this is still not done, then the council may apply for a Liability Order to be issued, allowing the council more power to collect the debt. These measures may include employing enforcement officers to collect the debt.
This is not a situation that you do not want to be in. So if you are struggling to pay your business rates, it is always better to be upfront with our local council about it.
What businesses don’t have to pay business rates?
As we have previously mentioned in this article, there are certain types of buildings that do not need to pay business rates at all and are totally exempt from doing so.
These buildings include:
- Farmland and buildings, but not including buildings that are used as offices, etc.
- Fish farms
- Buildings that are exclusively used for the welfare or training of disabled people
- Any place that is used for public religious worship
If you think you fall into any of the above categories but are still paying business rates, you should contact your local authority.
What about empty properties? Commercial properties that are empty and unused do not have to pay business property rates for the first three months in which they are unoccupied. If the property is a warehouse or an industrial property, the exemption extends to six months. After these grace periods, empty commercial properties will need to pay their property rates as usual.
What businesses can get business rate relief?
Business rate relief refers to a wide number of relief programmes aiming to reduce business rates for certain business owners.
The first type of business rate relief is the relief offered because of the COVID-19 pandemic and the knock that it has had on many businesses in the UK. If you are a business that falls into the hospitality, leisure or retail industries, you can expect a 66% discount on your rates up until March 2022, where different relief measures may be put in place.
The types of businesses that this 12-month rate relief applies to are ones like cafes, bars, restaurants, shops, spas, sports clubs, gyms, caravan parks and certain types of accommodation and many others such as nurseries. If you are eligible for this type of relief, the discounts will automatically be made on your business rates bill.
There are, in fact, many other types of business rates relief available in the UK that are well worth looking into if you want to reduce your costs. Your business could be eligible!
Do charities receive business rate relief?
Charitable businesses are well-respected in the UK, and to help them do their charitable work, charities may receive business rates relief of up to 100%. Registered charities will automatically receive up to 80% relief, but you may need to apply for discretionary relief if you want to receive further discounts.
Understanding how your business rates work and having an accurate estimate of what you are going to have to pay each year is very important. It is a necessary skill and knowledge sphere of being a business owner. It can help you budget effectively and make better choices when choosing which property you want to move your business into. If there is anything that you are uncertain about when it comes to business rates, it is best to speak to a professional business advisor.