What You Need to Know About Business Rates: A Comprehensive Guide for Businesses

Are you a business owner, or perhaps considering starting a new venture? If so, you've likely encountered the term "business rates" – a phrase that can often sound complex and intimidating. But what exactly are business rates, and how do they impact your bottom line? Understanding this crucial aspect of commercial property taxation is vital for effective financial planning and ensuring the longevity of your business.

This comprehensive guide will demystify business rates, breaking down their purpose, how they're calculated, and, most importantly, how you might be able to reduce your payments. By the end, you'll have a clear understanding of what you need to know about business rates, empowering you to navigate this essential business expense with confidence.

What Exactly Are Business Rates?

Business rates, also known as National Non-Domestic Rates (NNDR), are a local tax levied on most non-domestic properties, such as shops, offices, pubs, warehouses, and factories. Think of them as the commercial equivalent of Council Tax for residential properties.

So, who has to pay business rates? Generally, if you use a building or part of a building for non-domestic purposes, you'll probably have to pay them. This includes owners, leaseholders, or even tenants, though typically the occupier is liable. Even if a property is empty, the owner or leaseholder may still be liable for a charge in most cases. The funds collected from business rates are administered and collected by local authorities and contribute towards the cost of local services like police, fire, and waste management.

How Are Business Rates Calculated?

Understanding the calculation of business rates is key to managing this expense. It's not as simple as a flat fee; it involves two main components: the property's "rateable value" and a "multiplier."

Understanding Your Property's Rateable Value

The rateable value (RV) is a crucial figure. It broadly represents the estimated annual rent your property could have been let for on the open market on a specific valuation date. This value is set by the Valuation Office Agency (VOA), an agency of HMRC, which compiles and maintains a list of all rateable values in England and Wales.

The VOA periodically revalues all non-domestic properties to reflect changes in the property market. For example, the current rating list's rateable values are based on a valuation date of 1 April 2021, which came into effect on 1 April 2023.

The Business Rates Multiplier

Once your rateable value is determined, it's multiplied by a figure called the multiplier (also known as the national non-domestic multiplier or "rate in the pound") to calculate your annual business rates bill. The government sets this multiplier for each financial year.

There are typically two multipliers:

• Standard non-domestic rating multiplier: Used for most properties.
• Small business non-domestic rating multiplier: A lower rate applied to properties eligible for small business rate relief.

For instance, if your property has a rateable value of £10,000 and the small business multiplier is 49.9p (0.499), your basic annual bill would be £4,990 (£10,000 x 0.499).

Understanding Business Rates Reliefs and Exemptions

One of the most important things you need to know about business rates is that you might not have to pay the full amount! The government offers various business rates reliefs (discounts) to provide financial assistance to businesses. Eligibility often depends on factors like the size, location, and nature of your business.

Here are some common types of relief you might encounter:

• Small Business Rate Relief (SBRR): This is a significant relief for smaller businesses. In England, properties with a rateable value of £12,000 or less may pay no business rates, while those with a rateable value between £12,001 and £15,000 can receive tapered relief. To qualify, businesses usually only occupy one property, though exceptions exist.
• Retail, Hospitality, and Leisure Relief: This scheme provides relief (e.g., 75% in England for 2024/25, up to a cash cap) for eligible occupied properties in these sectors, supporting industries heavily impacted by economic challenges.
• Rural Rate Relief: Businesses in designated rural areas may be eligible for up to 100% relief.
• Charitable Rate Relief: Registered charities and certain non-profit organizations can receive relief on properties used for charitable purposes, often a substantial reduction or exemption.
• Empty Property Relief: If your property is vacant, you might be eligible for a period of relief (e.g., three months for offices and retail, six months for industrial properties) before full rates become payable.
• Enterprise Zone Relief: Businesses located within designated Enterprise Zones may benefit from enhanced relief on business rates for up to five years.
• Transitional Relief: This is applied automatically to limit how much your bill can change at a revaluation, preventing sudden large increases or decreases.

It's crucial to check your eligibility for these reliefs with your local council, as some are applied automatically, while others require an application.

Challenging Your Business Rates Assessment

Do you suspect your business rates bill might be incorrect? Perhaps your property details are wrong, or you believe your rateable value is too high? You have the right to challenge your business rates assessment.

The process in England is known as Check, Challenge, Appeal:

1. Check: You should first review the details of your property held by the VOA. If you believe any factual details are wrong (e.g., floor area, description), you should inform them.
2. Challenge: If you still believe your rateable value is too high after the "Check" stage, you can submit a formal "Challenge" to the VOA. This must include the legal basis for your challenge and a proposed alternative rateable value with reasons.
3. Appeal: If you're unhappy with the VOA's decision on your challenge, you can appeal to the independent Valuation Tribunal for England (VTE). There is usually a fee for appealing (£150 for small businesses, £300 for others).

It's important to remember that you must continue to pay your business rates bill during the appeal process. While you don't necessarily need a lawyer, hiring a rating valuation expert can be highly beneficial, as they have specialist knowledge and can advise on whether an appeal is appropriate (as valuations can sometimes increase as well as decrease on appeal).

Paying Your Business Rates

Once your business rates bill is calculated, you'll need to pay it to your local council. Bills are typically issued in February or March for the upcoming financial year, which usually starts on 1 April.

Most councils offer various payment methods to make it convenient for businesses:

• Direct Debit: Often considered the safest and easiest way to pay, allowing automatic monthly collections. Payments are usually set on a 10-monthly cycle, but you can often request to pay over 12 months.
• Online Payment: Many councils provide online portals where you can pay using a debit or credit card.
• Telephone Payment: You can typically pay by debit or credit card over the phone.
• BACS Transfer: Direct bank transfers are usually an option, requiring you to quote your business rates account number.
• At a Post Office or PayPoint Outlet: You can often pay by cash, cheque, or debit card at these locations.
• Cheque: While less common now, paying by cheque is usually still an option, often requiring you to send it by post.

Always ensure you quote your business rates account reference number on all payments to ensure it's allocated correctly. If you're experiencing difficulty paying your instalments, it's crucial to contact your local council as soon as possible to discuss options.

The Impact of Business Rates on Your Business

Business rates represent a significant financial burden for many businesses, often being the third largest business tax after National Insurance contributions and Corporation Tax. In recent years, they have raised substantial amounts for the Treasury, contributing to local services.

However, the impact of business rates extends beyond just the financial cost:

• Financial Burden: Business rates can be a considerable operating cost, influencing a business's profitability and cash flow.
• Investment Decisions: The burden of business rates can affect key business decisions, such as investment in new premises, expansion, or relocation.
• Economic Distortions: Some argue that the current system can create economic distortions, particularly impacting high street businesses and certain sectors like retail and hospitality, which pay a disproportionately high amount of business rates compared to their economic contribution. This can place physical stores at a disadvantage compared to online retailers.
• High Street Decline: Concerns have been raised that the business rates system contributes to the decline of high streets by adding an additional financial burden on physical businesses.
• Job Impact: Analysis suggests that increases in business rates can put jobs at risk and reduce economic output.

Understanding these broader impacts highlights why many businesses and industry bodies advocate for reform of the business rates system to make it fairer and more supportive of economic growth.

Conclusion

Navigating the world of business rates can seem daunting, but armed with the right information, it becomes a manageable aspect of running your business. From understanding how your rateable value is determined and how the multiplier works to exploring the various reliefs available, taking proactive steps can significantly impact your financial health. Remember to regularly check your assessment, understand your eligibility for reliefs, and know your options for payment and challenging your bill.

By staying informed and engaged with your business rates, you can ensure your business contributes fairly to local services while optimizing your operational costs.

Frequently Asked Questions

Q1: Who is ultimately responsible for paying business rates?

Generally, the occupier of the non-domestic property is liable to pay business rates. If the property is empty, the owner or leaseholder is usually responsible.

Q2: Can I get a discount on my business rates?

Yes, many businesses are eligible for discounts, known as "business rates relief." Common reliefs include Small Business Rate Relief, Retail, Hospitality, and Leisure Relief, Rural Rate Relief, and Charitable Rate Relief. Eligibility varies based on factors like property value, location, and business type. You should contact your local council to check what you might be entitled to.

Q3: What happens if I don't pay my business rates?

Business rates are a legal tax liability. Failure to pay can lead to recovery action by your local council, which may include reminder notices, summonses to court, and ultimately enforcement actions if the debt remains unpaid. It's always best to contact your council immediately if you anticipate or are experiencing difficulties with payment.

Q4: How often are business properties revalued for business rates?

The Valuation Office Agency (VOA) periodically revalues all non-domestic properties to ensure rateable values reflect changes in the property market. These revaluations typically happen every few years (e.g., the last revaluation came into effect on 1 April 2023, based on 1 April 2021 values, and a new revaluation is expected for 1 April 2026).

Q5: Can my business rates increase if I make improvements to my property?

Yes, changes to your property, such as adding an extension or changing its use, can lead to a reassessment of its rateable value, which may result in a change to your business rates liability. You should inform the VOA of any significant changes.