If you’re a small business owner, you’ll know just how frustrating it is to see business rates eat away at your hard-earned profits. With all the other business pressures and expenses you have to deal with, business rates can seem truly unnecessary and annoying.
Business rates in the UK come in the form of the tax you need to pay when occupying a commercial property. In certain cases, this could amount to as much as 50% of your annual rent and can push up your business expenses by a massive margin.
But did you know that there are a few different ways in which you could reduce your business rates? In some cases, certain small businesses could be totally exempt from paying business rates altogether! Because business rates are one of the most complex business taxes, many business owners do not understand them in their entirety and therefore miss out on opportunities to legally have the amount they pay in business rates reduced. But knowing whether you are eligible for a reduction in business rates is a fairly simple process and definitely worth the required research.
As experts in all things related to small businesses, Real Business takes a keen interest in how small businesses can reduce their business rates and other business expenses so you can spend these savings on growing your business.
In this article, we’ll explore some of these avenues and give you practical ways in which you could have your business rates reduced.
How are business rates calculated?
The first step in understanding business rates is understanding how business rates are calculated. Business rates work on multipliers. There are two multipliers, namely:
- Non-domestic rate multiplier for small businesses
- Non-domestic rate multiplier for other businesses
‘Other businesses’ usually includes large corporations, and your average small business should not use this multiplier.
You can estimate your payable business rates by multiplying your rateable value by your relevant multiplier. This gives you the business rate you can expect to pay on your commercial property.
But what is my rateable value?
Rateable values are based on property evaluations, and you are able to work out your current rateable value by submitting your postcode to the Valuation Office Agency website. If you feel that your rateable value is not correct, you can always request for it to be changed by the VOA. To get an idea if your rateable value may be incorrect, you’ll need to do some research into the rateable value of other properties in your area.
As you can see, simply estimating your business rate is a somewhat complex process. But it is definitely worth looking into should you want to reduce your rates.
Using Small Business Rate Relief to reduce your business rates
In the UK, there is a relief program called Small Business Rate Relief that provides business rate relief to small, emerging businesses. It was introduced in April 2005 and is responsible for assisting hundreds of UK-based businesses with relief. It aims to help get smaller businesses off the ground by reducing some of their initial expenses.
Your small business may be eligible for this relief if:
- The main qualifying factor is if your rateable value is under £15,000.
- While it is not imperative that your business only has one property, it will help if you do.
If you want to find out if your business is eligible for small business rate relief and apply for this relief, you’ll have to get in contact with your local council.
Types of relief
So what are the types of relief that are offered by the Small Business Rate Relief, and how much can you really expect to cut off your business rates tax bill by applying for Small Business Rates Relief?
Less than £12,000
If your business’s rateable value is less than £12,000, you can expect to have your business rates reduced by 100%! This means if you have a property with a rateable value of less than £12,000 and are paying business rates, you really shouldn’t be, and it is time to take action.
If your property is on the smaller side, not in the very best neighbourhood, or is quite old, its rateable value may very well be £12,000 or less, and it would definitely be worth applying for this relief. The sooner you do it, the more money you’ll save your business.
Between £12,000 and £15,000
If your business’s rateable value is between £12,000 and £15,000, you can expect to obtain relief anywhere from 0% to 100%. A variety of factors will determine the amount you receive, and it will be your local council that has the final say on the matter.
How can I reduce my business rates through relief if I have more than one property?
The Small Business Rate Relief favours businesses that have just one property, but you may still be eligible for this relief should you have one main property and additional, smaller properties. The small business rate relief would only apply to your main property, and that is only if you meet the following criteria.
- Your main business’s rateable value does not exceed £15,000.
- Your additional properties’ rateable values do not exceed £2,899 each.
- The combined rateable value of all of your business properties is less than £20,000 if you’re not in London and less than £28,000 if you are in London.
If you start out with just one property and are able to get relief, this relief will only be valid for 12 months after you obtain a second business property. After this 12 month period, you’ll have to get evaluated and see if you meet the above criteria if you still want to receive small business rate relief on your main property.
The criteria for this type of relief is quite strict, and you may want to take this into consideration when deciding to branch out with your business and take on a second property.
How to get your business rates reduced through Covid business rates holiday
As we all know, thousands of businesses in the hospitality and entertainment industry took a massive hit because of lockdowns caused by the Coronavirus pandemic that started in early 2020. Up until 30 June 2021, many affected businesses had their rates discounted by a whopping 100%.
From 1 July 2021 to 31 March 2022, certain businesses still have the opportunity to have their business rates reduced by two thirds if they fall within the following industries:
- Restaurants, cafes, bars, live music venues, cinemas, bingo halls, entertainment facilities.
- Estate agencies, letting agencies.
- Sports grounds, museums, gyms, tourist attractions.
- Hotels, camping grounds, self-catering accommodation.
There is a cap of £2m for each business that was forced to close and £105,000 for businesses that remained open during the Coronavirus pandemic. The tourism, hospitality, and entertainment industries in the UK (and around the world) have taken a serious knock, so it is great to see that there is relief provided for this unprecedented time in history.
If your business has been affected by the Coronavirus pandemic, it is well worth getting in touch with your local council to determine if you’re eligible for some form of relief when it comes to your business rate taxes. Many affected businesses are still paying their full rates as they have simply not taken the necessary initiative.
How to obtain rural rate relief?
Let’s face it, businesses in small, rural villages may not do as well as a business in the hub of London, and that is why some rural businesses may be eligible for rural rate relief. Your business may be eligible for this relief if:
- Your business happens to be the only post office or shop in your village. In this case, your rateable value also needs to be under £8,500.
- Your business happens to be the only public house or petrol station in your village and has a rateable value of less than £12,500.
Depending on your rateable value, you could receive rural rate relief to as much as 100%. Please note that rural rate relief is different in Wales, Scotland, and Northern Ireland. So if you are a rural business that is one of a kind in your village, you need to look further into rural rate relief.
What if my business is a charity?
Do you run a charity? In that case, you may be able to receive as much as 80% off your business rates as charitable rate reliefs aim to reduce business costs for charities and local amateur sports clubs (if they are used for charitable reasons). This 80% relief may even be upped to 100% in cases of ‘discretionary’ relief. If you think you may be eligible, get in touch with your local council to find out more about the application process.
Exemptions that you should know about
There are certain properties that are totally exempt from paying business rates altogether. These properties usually include empty properties that meet a certain list of criteria. If your business or office building is empty, you are totally exempt from paying business rates for up to three months. In the cases of industrial premises, the exemption period is six months. After these time periods, business owners will be obligated to pay full business rate amounts.
It should also be noted that this exemption applies to the property and not the business owner. Therefore if there is a change in ownership or tenancy, the three month or six month period of grace is not re-started.
There are some empty properties that will be exempt from business rates for the entire duration of them being empty and not just their six month or three month exemption periods. Eligible properties for this total exemption include:
- Properties with rateable values of below £2,900
- Properties in which the owner has been prohibited from occupying the premises because of health and safety issues etc.
- If the owner has gone bankrupt
- Listed buildings
- Any properties that are used by charities and amateur local sports clubs
Speak to your local council if you want to find out more about empty property exemptions.
What other exemptions are there besides empty properties?
Besides empty properties, there are a few other types of non-domestic properties that are exempt from paying business rates, and these include:
- Agricultural buildings;
- Land, including an array of different types of farms;
- Any properties that are used for the enrichment, training, and welfare of disabled people;
- Any properties that are registered to be used for religious worship and ceremonies.
If you feel that your property could be eligible for business rates exemption, please inquire with the Valuation Office Agency.
How does transitional relief work?
If you haven’t met any of the criteria for the abovementioned relief schemes, you could still be eligible for transitional relief. Transitional relief works by limiting the amount that your business rate bill can change, allowing you to budget effectively and plan for the future. The reason why you may experience changes to your business rates bill in the first place would most likely be due to re-evaluation and the rateable value of your property increasing or decreasing.
If you’re eligible for transitional relief, changes will be implemented to your bill very gradually, ensuring that you’re not in for any big surprises. You’re able to get transitional relief if your rates are going up and down and if your property is situated in England. If you are eligible, your local council will ensure that your bill is adjusted automatically. You may stop receiving transitional relief once your property reaches the full amount of a re-evaluation.
If you are still struggling to understand the concepts and factors that influence business rates and how you may have yours reduced, you may want to employ the expertise of a business expert or financial advisor. While you’ll have to pay fees for their services, in the long run, they could be highly valuable in helping point out ways in which your business could be saving money.