While running your own business is one of the most rewarding ways to make a living and can give you the freedom to be your own boss, part and parcel of the deal is the accompanying homework you’ll be responsible for.
From pension schemes to tax and PAYE to invoices, there’s a lot involved behind the scenes that fuel the successful and above board running of a business.
One such responsibility is business rates.
So, in the interest of taking one thing off your plate and avoiding a headache, in this article we’ll break down everything you need to know about them.
Business rates are a form of tax applied to properties used for business purposes - they’re statutory, levied by the central government on those responsible for commercial property, and collected by your local council.
Sometimes referred to as ‘non-domestic rates’, business rates are applied to nearly all non-domestic properties, including:
The amount you’ll pay in business rates depends on what’s known as your business’ rateable value.
What’s a rateable value? It’s your property’s estimated value on the open market according to the Valuation Office Agency (VOA).
The VOA conducts what are known as revaluations every five years, and the last one came into effect in April 2017 based on values as of April 1st 2015.
Good to know: In June 2019 the government announced new legislation shortening the revaluation period to three years, meaning the next one should come into effect in 2021, however the Coronavirus pandemic put the breaks on this and the next revaluation will now come into play in 2022.
All the above jargon doesn’t really help you understand what your business’ rates will be, and we totally get that forecasting cost is important, so now we’ll cover how you can estimate your business’ rates.
Important: There’s a separate way to calculate your rates if you’re based in Scotland or Northern Ireland.
For businesses in England and Wales, the first thing you’ll need to do is identify the rateable value of your business, and you can do this via the VOA here.
Once you’ve got your hands on this information you next need to identify your ‘multiplier’ - there are two types; the standard multiplier and the small business multiplier.
Here’s a break down of what these multipliers look like in action for the last four financial years.
Small business multiplier
* Figures obtained from gov.uk May 2021
Now you’re armed with all the numbers you need you can work out your business’ estimated business rates by multiplying your rateable value by your multiplier.
The figure you come up with will give you a rough idea but remember you might be entitled to business rate relief, and this will be deducted from your rates.
Good to know: There are different multipliers in the City of London and Wales.
Some commercial properties are eligible for discounted rates from their local council. There are multiple relief schemes on offer and you can find out which ones you might be eligible for by contacting your local council.
Relief schemes you can apply for include:
In the interest of time, we won’t go into detail on each, but if you think any of the above schemes might apply to your business you can read up on them in more detail here.
This type of relief puts an upper limit on how much your business rates can change by each year as a result of revaluation.
It doesn’t mean you won’t need to pay a higher rate but instead means the change will be phased into your bill gradually so you’re not hit with a big hike all in one go.
If your rates change by enough to meet eligibility criteria your local council will automatically apply transitional relief to your bill. Once your payment reaches the full amount outlined by revaluation your transitional relief will come to an end.
If your business property’s rateable value (as identified above) is less than £15,000 and your business only uses one property, you can get small business rate relief.
If your rateable value is £12,000 or less, you will not pay business rates.
For those with a rateable value of between £12,001 and £15,000, the rate of relief will decrease gradually from 100% to 0%.
Confused? Let’s look at some examples.
If you expand your small business and take on a second property you’ll still be entitled to small business rate relief on your first property for 12 months.
After 12 months you can still get relief if:
If you don’t meet the eligibility criteria for small business rate relief you can still get a discounted bill.
Any commercial property in England with a rateable value of less than £51,000 will have its bill calculated using the small business multiplier, which is less than the standard one (see above).
Top tip: If you think your rateable value is wrong you can ask for it to be corrected here.
If any of the following points apply your business rates could change:
If this is the case you need to inform the VOA as soon as possible to avoid a hefty backdated increase in your business rates bill.
In most cases, you will not need to pay business rates if you’re working from home, so if you’ve turned your spare room into an office or stuck a desk in your living room (thanks COVID), you won’t need to pay any rates.
Good to know: this also applied to those selling goods by post.
In some circumstances though you’ll need to pay business rates on top of your Council Tax if you’re working from home, this includes:
If you’re unsure whether you need to be paying business rates on your home you can contact the VOA for guidance here.
The way rateable values are calculated changes for our beloved landlords and ladies - the VOA bases it on the level of trade annually (excluding VAT) a pub is expected to achieve if it runs in a ‘reasonably efficient way’.
They refer to this method as ‘fair maintainable trade’, and it’s based on three things:
And that’s not all, the VOA also examines rents and turnovers when discerning the fair maintainable trade figure and then applies a percentage to come up with the rateable value.
The British Beer and Pub Association agrees to these percentages.
Confused? We know it’s a lot to get your head around but you can learn more here, and as always if you’ve got concerns, queries, or objections you can contact the VOA here.
If your business involves letting out your property in England for short periods which, combined, total 140 days or more per year it will be valued for business rates and rated as a ‘self-catering property’.
The VOA will calculate the rateable value of said property based on:
Remember: you could still be eligible for small business rate relief if your rateable value is less than £15,000.
Before we go we’ll leave you with some positive news, and it’s that in light of COVID-19 the government has announced a business rates holiday for the following businesses:
You do not need to apply for this business rates holiday, your local council should automatically apply it for you, but of course, if you think you’re eligible and aren’t receiving help get in touch with your local council and express your concerns.
The relief will apply to 2020-2021 business rates bills, although it’s thought the government will make an announcement about the future of the scheme in due course, so keep your eyes peeled.
For more useful resources and comprehensive guides just like this one head to our dedicated blog designed to support small businesses.