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What are business rates and how do they work?

If you can’t run your business from home and you need commercial space to be able to trade, it’s highly likely that you have come across business rates by now. Business rates are a tax that you need to pay when you own or rent any non-domestic property.

Business rates have come in for a lot of bad press in recent years because of the apparent arbitrary nature of property valuations, the hikes in the multipliers used to work out individual businesses’ annual business rates, and the apparent unfair competitive advantages that internet-only retailers enjoy over High Street-based businesses on the level of business rates they have to pay.

As you’d expect with any tax, business rates come with their own set of complicated brackets, reliefs, and rules that you need to know about. TWP explains everything in this article.

Please be aware that this article covers only the application of business rates in England. It also does not cover situations where you put a property to use for commercial reasons (like holiday homes or guest houses) – different rules apply in these circumstances and we’ll cover that in a later article.

What are business rates?

Business rates (also called National Non-Domestic Rates) are a tax that your business pays when it owns and leases a property or properties used for commercial purposes. The owners or tenants of all non-domestic properties above a certain rateable value pay business rates as their financial contribution to their local council.

How do you work out your business rates?

You first need to find out what the rateable value of the property is. You can do this using the government’s online tool here. This is an estimate of what the rental value will be.

If the rateable value of your premises is less than £51,000, then you multiply your rateable value by the small business rate of 0.48. For example, if your rateable value is £25,000, multiply that figure by 0.48 to calculate your business rate contribution so £25,000 multiplied by 0.48 equals £12,000.

If the rateable value of your premises is £51,000 or more, then you apply the standard multiplier of 0.493. For example, if your rateable value is £75,000, multiply that figure by 0.493 to calculate your business rate contribution so £75,000 multiplied by 0.493 equals £36,975.

Business rates in the City of London

On both rates, there is an additional 0.005 to be added to the multiplier which pays for, according to the council’s website, “the Police Service, security, resilience and contingency planning in the City.”

There is also an additional 0.02 to be added to the multiplier on premises with a rateable value of £70,000 or more to pay for the Crossrail project.

How to pay your business rates

Your local authority will send you the amount that you need to pay by post. You pay your business rates in monthly instalments collected by direct debit over 10 months out of the 12.

If you move into new premises part way through a local authority financial year (which runs from April to April), the council will pro-rata the business rates you have to pay to reflect for the fact that you have not been in occupancy throughout the full year. If there are less than 10 months left to run in the local authority financial year, your business rates will be paid in equal sums for each month remaining in the year.

Small business rates relief

If your business only occupies one property and that property is has a rateable value of between £12,000 and £14,999, you will be eligible for small business rates relief. Your business rates will be a pro-rata’d amount of rateable value of your property. For example, if your rateable value was £14,000 (two thirds of the way between the two figures), you’d pay two thirds of the small business rate instead. So, instead of your multiplier being 0.48, it would effectively be 0.32 (two thirds of 0.48).

If the rateable value of your premises is less than £12,000, you don’t pay any business rates.

You may still be able to apply for relief if you have more than one property – you will need to check with your local council.

Do I pay rates on empty commercial premises?

Yes. However, there are workarounds. You can claim full exemption of empty commercial premises for three months or six months if the premises are industrial. After this point, Google is your friend. You might want to search for “avoid business rates empty property” to begin with. Alternatively, please do give your TWP contact a call or an email.

Can I appeal against the rateable value?

Yes but many commercial surveyors think the system is unfair and designed to find in favour or the Valuations Office.

First, challenge your council. You will almost certainly get short shrift from them so then appeal to your local Valuations Office. They will probably also tell you to move along.

Your final stop will be the Valuations Tribunal Service. Unfortunately, if they’re not willing to help, there are no more avenues to explore.

Sorry we sound so pessimistic about this. We’re on your side – the side of the small business – but the whole appeals system does look rigged, according to our friends and colleagues in commercial lettings and sales agencies. If you do decide to appeal, please involve us in your fight and we’ll do everything we can to help.

Help with your business rates

If you would like advice on business rates or if you think you might be eligible for a business rates relief and you want to talk about it with your accountant first, get in touch with our team. Call us today on 01932 704700 to discuss how we can help you.

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