What are business rates? A guide for small businesses

Understanding Business Rates: A Comprehensive Guide

Business rates, one of the UK’s oldest taxes, can be traced back to the Poor Law of 1601. These rates are essentially the tax paid for the occupation of a non-domestic property and typically amount to around 50% of the property’s annual rent. The rateable value serves as the basis for calculating business rates, with all commercial properties being valued on the same day.

Administered and collected by local authorities, business rates are a way for those occupying non-domestic properties to contribute towards the cost of local authority services. However, they also represent a significant overhead for businesses, making them a controversial tax.

Setting of Non-Domestic Rates

The Valuation Office, an agency of Her Majesty’s Revenue and Customs (HMRC), is responsible for setting business rates in the UK. The rateable value, which represents the yearly rent a property could fetch on the open market, forms the basis for these rates. The Valuation Office Agency maintains a list of all rateable values, with any changes in valuation being subject to review by the ratepayer.

It’s important to note that business rates are handled differently in Scotland and Northern Ireland.

How Business Rates Work

Business rates can be estimated using a multiplier set by the VOA, typically around 50p to the pound. This multiplier applies to larger businesses with a rateable value of £51,000 and above, as well as to empty premises with a rateable value of £2,900.

Additionally, the VOA introduced the Check, Challenge, Appeal (CCA) scheme in 2017 to streamline the appeals process for ratepayers. This scheme requires ratepayers to verify their assessment, challenge it if necessary, and then appeal if dissatisfied with the outcome.

Who Pays Non-Domestic Rates: Landlord or Tenant?

Non-domestic rates are paid by the occupier of the premises, which could be either the landlord or the tenant. The responsibility for paying the rates is typically outlined in the rental agreement between the two parties. Even in cases of empty properties, the rates bill must be settled, with extended relief available for certain types of properties.

Business Rates Amount and Relief

The rateable value forms the basis for calculating business rates, though the actual amount payable may vary based on individual circumstances. Rate relief, which can lead to a reduction in the rates bill, is available to eligible ratepayers. Temporary reliefs, often introduced by the government, can further alleviate the burden of business rates.

Notably, in response to Covid-19, retail, leisure, and hospitality businesses were granted a 75% rate relief up to a cash cap value of £110,000 per business, continuing into the 2024/25 tax year.

Registering for Business Rates

To register for business rates, businesses can contact reputable rating surveyors or directly liaise with the local council. Checking and comparing properties on the VOA website can also provide insights into the rates applicable to a specific property. Given the technicalities and complexities of business rates, seeking advice from qualified representatives is advisable.

Sophie Attwood, a director of rating at Colliers and head of rating in the Liverpool office, recommends seeking professional assistance for navigating business rates.

Conclusion

Business rates are a crucial aspect of operating a non-domestic property in the UK. Understanding how these rates are set, calculated, and paid is essential for businesses to manage this tax effectively. Seeking expert advice and staying informed about available reliefs can help businesses optimize their financial obligations related to business rates.

Further Reading

For more information on business rates and related topics, consider exploring additional resources such as “Do I need to pay business rates working from home?”