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Understanding Business Rates & How They Are Calculated

how are business rates calculated

Buying or renting a business space and wondering how are business rates calculated? This guide will help. Business rates are a tax that is charged on non-domestic properties, such as shops, offices, factories and warehouses. The amount of business rates payable is based on the value of the property and the government business rates multiplier which is set each year. The multiplier is based on the Retail Price Index (RPI) inflation rate and is used to calculate how much you will need to pay.

Read on to learn more about the cost of business rates including how they are calculated and what affects how much you will pay.

What Are Business Rates?

Business rates are a tax that businesses in the UK have to pay based on the value of their commercial property. This covers properties such as shops, offices, warehouses, and factories. Business rates can be a significant expense for companies, and they are often one of the largest factors in determining the price of goods and services sold, and can have a bit impact on a company’s bottom line.

There are two types of business rates: standard and small business. Standard rates apply to most businesses, while small businesses may be eligible for a discount. To qualify for the small business rate, your property must have a rateable value of less than £15,000.

Although business rates are set by the government, they are collected by local councils to pay for local services, such as roads and schools.

What Affects How Much I Will Pay?

The final cost of business rates due for your business will depend on several factors including;

These include:

  • The value of your property: This rateable value is determined by a professional valuation and takes into account factors such as the size and location of the property.
  • The business rates multiplier: This is set by the government each year and is based on the Retail Price Index (RPI) inflation rate.
  • Any discounts or reliefs that you are entitled to: Several discounts and reliefs can reduce the amount of business rates you need to pay. These include discounts for small businesses, businesses that are located in deprived areas, or reliefs for businesses that are considered to be important to the local economy.

How Are Business Rates Calculated?

The amount of business rates you pay is based on the rateable value of your property and the government-set business rates multiplier. The multiplier is calculated using the Retail Price Index (RPI) inflation rate and is reviewed each year.

  • (rateable value) x (multiplier) = (basic business rates)

We’ve covered each part of the calculation in more detail below.

What Is The Rateable Value?

How is rateable value set

The rateable value is the value of your property that is used to calculate how much you will need to pay in business rates and this can go up or down depending on changes in the property market.

Property value bands are used. For example, if your property is worth between £0 and £150,000, you will be in the A band. If your property is worth between £151,000 and £250,000, you will be in the B band. And so on.

If the rateable value is less than £15,000, small business relief may be able to be applied for and you will not pay business rates on a property with a rateable value of £12,000 or less.

Find your rateable value here

The rateable value is set by the Valuation Office Agency (VOA) and is determined by a professional valuation, taking into account factors such as the size and location of the property. The rateable value is reviewed every five years, and the most recent revaluation was conducted in 2017. The next revaluation is scheduled for 2022.

What Is The Business Rates Multiplier?

The Business Rates Multiplier is the figure used to calculate your annual business rates bill. It is based on the value of your property and is set by the government each year. The multiplier is calculated using the Retail Price Index (RPI) inflation rate.

The retail price index (RPI) is a measure of the change in prices of goods and services bought for consumption by UK households. The index is calculated by taking the average price changes for a representative basket of 700 goods and services. This has been the official measure of inflation since 1947 and is widely used by businesses, governments and individuals to make decisions on price changes, wage negotiations and setting financial contracts. Inflation can have a significant impact on people’s lives, as it can affect the cost of essential goods and services, including business rates.

When putting this into context for business rates, the RPI inflation rate is the percentage change in the index over 12 months and this figure, in conjunction with your property’s rateable value will be used will determine the number of business rates paid.

The Business Rates Calculation

As above, the property value and business rates multiplier is used to calculate the amount of business rates that businesses are required to pay.

To work out your bill, multiply your property’s rateable value by the Business Rates Charge (known as the multiplier).

  • Standard Business Rates Multiplier for 2022/23: 51.2p
  • Small Business Rates Multiplier for 2022/23: 49.9p

For example, if you have business premises with a rateable value of £10,000, it would qualify for the small business multiplier.

  • £10,000 (rateable value) x £0.499 pence (multiplier) = £4,990 (basic business rates)

Can You Reduce The Amount Of Business Rates You Pay?

Business rates are a significant overhead for any business, For this reason, many businesses make use of business rate relief schemes, which can help to reduce the amount of tax that they have to pay.

  • One way to reduce your business rates is to appeal the property valuation. If you think the rateable value of your property has been overestimated, you can submit an appeal to the Valuation Office Agency.If you disagree with the outcome of your appeal, you can ask for a review by an independent valuation tribunal.
  • Another way to reduce your rates bill is to claim certain reliefs that may be available. For example, if your business is in a disadvantaged area, you may be eligible for small business rate relief.
  • To find out more about reliefs and discounts, contact your local authority or visit GOV.UK.
  • You may also be able to get charity relief if your property is occupied by a charity or a community amateur sports club (CASC).
  • In 2022 business rates relief for retail, hospitality and leisure were announced on 1st April. Qualifying businesses could get 50% off their business rates bills for the 2022 to 2023 tax year (1 April 2022 to 31 March 2023) – up to a total value of £110,000 per business.

By taking some time to investigate the options, you can make sure you’re not paying more than you need to in business rates and improve your bottom line.

What Else Do I Need To Know About Business Rates?

If you are thinking of buying or renting a commercial property, it is important to be aware of the business rates that will apply. This will help you to budget for this expense and ensure that you are not paying more than you need to.

There are several ways to reduce your business rates, such as by being located in a disadvantaged area or by making energy-saving improvements to your property. You may also be eligible for relief if your business is suffering due to the coronavirus pandemic. If you are unsure about anything, it is always best to speak to a professional valuer or your local council who will be able to advise you on the best course of action

Related Questions

What Affects The Value Of A Commercial Property?

There are several factors that can affect the value of a commercial property, and therefore how much business rates you will need to pay.

These include:

  • The size of the property – Larger properties will generally have a higher rateable value, and therefore a higher business rates bill.
  • The location of the property – A property that is situated in a prime location is likely to be more valuable than one that is not.
  • The demand for commercial space in the area – If there is high demand for commercial space in an area, then properties will generally be more valuable.
  • The type of property – For example, a shop is likely to be valued differently to an office space.
  • The condition of the property – A property that is in good condition is likely to be more valuable than one that needs repairs.
  • The age of the property – Older properties are often more expensive to insure and maintain, and therefore have a lower value.
  • Whether the property is listed – Listed buildings have a higher value as they are protected by law.

These are just some of the factors that can affect commercial property values and a commercial valuer will be able to take all of these and more into account when providing a professional valuation.

Do I Have To Pay Business Rates If I Work From Home?

If you work from home, you may be eligible for a discount on your business rates but this will depend on the size and type of property you have, as well as the amount of space you use for business purposes. You will need to speak to your local council to see if you are eligible for a discount.

What Are The Pros And Cons Of Business Rates?

Some of the advantages include:

  • They are a tax that is based on the value of the property, which means that businesses with higher-valued properties pay more.
  • The money raised through business rates is used to fund local services, such as schools and roads.
  • Business rates can be a significant source of revenue for the government.

Some of the disadvantages of business rates include:

  • They can be a significant expense for businesses, which can impact the price of goods and services sold.
  • Business rates are set by the government and can be increased without much notice, which can make budgeting difficult.
  • Some businesses may be entitled to discounts or reliefs, which can create an uneven playing field.

What Is Inflation

What is inflation

The RPI is not the only measure of inflation, but it is one of the most widely used. Other measures of inflation include the Consumer Prices Index (CPI) and the Producer Prices Index (PPI).

Inflation is a general increase in the prices of goods and services in an economy. The main cause of inflation is too much money chasing too few goods. When aggregate demand in the economy outpaces aggregate supply, prices start to go up. This can lead to a vicious cycle, where higher prices lead to even more demand, driving prices even higher. Inflation can be beneficial in a moderational sense, as it encourages people to spend rather than save.

However, excessive inflation can be very detrimental, leading to economic instability and asset bubbles. Central banks typically use monetary policy to keep inflation in check, raising interest rates when inflation gets too high and lowering them when it starts to fall. By doing so, they can help to ensure that the economy remains healthy and stable.

Summary

If you’ve ever wondered how business rates  are calculated, we hope this article has demystified the process and given you a clearer understanding of what business rates are, how they’re used and how the amount you need to pay is worked out.

Businesses may be eligible for discounts or reliefs on their business rates, but this will depend on the size and type of property you have, as well as the amount of space you use for business purposes. You will need to speak to your local council to see if you are eligible for a discount.

 

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