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Business rates explained
Business rates explained
December 2021
In another article we talked about the costs of starting a business and one of the costs listed is business rates. So, if you have business premises - or in some cases, even if you work from home - you need to factor them in.
The cost can be a big deal when you’re a small business, so read on for an overview of how to calculate your business rates, and a quick guide to the exemptions and reliefs available.
What are business rates?
Think of business rates like a council tax, but for businesses. It is charged on work places or ‘non-domestic’ properties such:
Shops, cafes and pubs
Warehouses and factories
Offices
- Guesthouses and holiday rental homes
The money is collected by your local authority and goes towards providing services such as: police, fire, waste disposal and street maintenance. Your local council will send you an annual bill in February or March. Just like council tax, business rates are paid in ten equal instalments.
Who has to pay business rates?
Business rates are paid by the occupier of the non-domestic property. So, even if you don’t own the property but you are a tenant who uses the property for business, you pay the rates.
What about if you work from home?
Generally, you won’t need to pay business rates if you’re using just a small part of your home for business purposes, like a desk in a room. Or, if you are selling goods by post.
However there are some circumstances where you will be liable for business rates if you are working from home:
- If you have a designated business area separate from your living area, like having a corner shop and living above it
If you employ people to work at your property
You sell goods to people who visit your property
You’ve made changes at home to accommodate your business, such as converting a garage into a nail bar.
If you’re unsure whether you should be paying business rates, contact the government’s Valuation Office Agency (VOA).
How are business rates calculated?
To explain how your business rate is calculated let’s break the process down into 3 easy steps:
Step 1:
Find out the ‘rateable value’ of the property.
This is the rental value of the property as calculated by the VOA. You can find this out by using the government’s online tool.
Step 2:
Find out the appropriate value ‘multiplier’
This is set by the government each year and tells you the number of pence you pay per pound of rateable value.
Rateable value under £51,000 (for 2021/22) = 49.9pence
Rateable value over £51,000 (for 2021/22) = 51.2pence
Step 3:
Calculate business rate
Rateable value x Multiplier = Business Rate
Example
Let’s pretend you run a café and the property had a rateable value of £17,500.
You would apply the lower multiplier of 49.9pence in the pound.
Therefore your business rate is £17,500 x 0.499 = £8,732.50
Payable in 10 instalments of £873.25
Business rate relief
As you can see business rates represent a sizeable cost for a small business. However there is good news in that there are exemptions and ways you can reduce your bill.
It pays to look into this and you should contact your local authority to see if you can reduce your spend on business rates. Here is a summary of the business rate reliefs that are available to business properties in England.
| BUSINESS RATE RELIEF | SAVINGS |
|---|---|
Small Business Rate Relief
|
You will not pay any business rates on a property with a rateable value of £12,000 or less.
|
Retail Discount
|
You could qualify for retail discount if your business is a: shop, restaurant, café, bar or pub, cinema or music venue, or in hospitality or leisure. |
Rural Rate Relief
|
You could get rural rate relief if your business is in a rural area with a population below 3,000.
You will not pay business rates if your business is the:
|
Charitable Rate Relief
|
Charitable rate relief of up to 80% is available if a property is used for charitable purposes. |
Enterprise Zone Relief
|
If you’re starting up or relocating to an enterprise zone you could qualify for relief which may be as much as £55,000 a year over 5 years. |
| Nurseries Discount | Available if your business is on Ofsted’s Early Years Register, or is wholly or mainly used to provide Early Years Foundation education. |
Local Newspaper Relief
|
£1,500 reduction for properties used as office premises for journalists and reporters on a local newspaper. |
| Exempted Buildings Relief | Certain properties are exempt from business rates:
|
| Empty Buildings Relief | You do not have to pay business rates on empty buildings for 3 months. Empty industrial premises (e.g. warehouses) are exempt for 3 months more.
The following empty buildings are exempt from business rates:
|
| Transitional Relief | If your property is revalued then your business rates may change. Transitional relief limits how much extra you can pay each year, so that increases are phased in slowly. |
| Hardship Relief | Councils can reduce your business rates if you can prove they would put you in financial difficulties, or that it would be in the interest of the local community. |
We strongly recommend that you contact your local authority or visit the government’s own online content for full details on eligibility, and the most current discounts. Business rates relief is handled differently in Scotland, Wales and Northern Ireland.
Business rates do’s and don’ts
Do find out early on if you have to pay business rates
Don’t assume if you work from home you’re exempt – look into it first
Do calculate how much your business rates will be
Don’t forget to look into exemptions and relief
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Let’s talk. We’re Britain’s bank for small businesses. Our Business Banking experts are here to help you with your business, with 25 months’ free day-to-day business banking, as well as 1 year’s free expert business advice from Enterprise Nation. Call 0345 835 3858 or contact us via your business bank account.
