How are business rates calculated?

If you run your own business from a commercial premises, it’s most likely you’ll need to pay business rates.

So, what exactly are business rates, and how are they calculated?

Find out in our guide.

If you run your own business from a commercial premises, it’s most likely you’ll need to pay business rates.

So, what exactly are business rates, and how are they calculated?

Find out in our guide.

Emily Kindness
From the Business team
6
minute read
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Posted 12 JANUARY 2020

What are business rates?

Business rates are a non-domestic tax placed on commercial properties or spaces that are used for business purposes, like offices, shops, cafes, pubs, warehouses and even holiday rental homes. They can also be charged on part of a building that’s used for business purposes.

Business rates are paid to the local council and go towards the funding of local services like education and transport.

The business rates process is slightly different in Scotland and Northern Ireland.

Do all commercial properties have to pay business rates?

Not all. Some properties might be exempt from business rates. These include:

  • Farm buildings, including fish farms
  • Buildings used for welfare or training of disabled people
  • Religious buildings and church halls

You might also be exempt from paying business rates if your building is empty for three months. After that, you’ll need to start paying the full rate again.

Depending on what they’re used for, some empty buildings might have business-rates exemption for longer. For example:

  • Empty industrial buildings, like warehouses, can be exempt for six months
  • Listed buildings won’t be charged until they’re occupied again
  • Amateur sports clubs – as long as they’re still used as a sports club when they’re reoccupied
  • Properties owned by charities – as long as they’re still used for charitable purposes when they’re reoccupied
  • Buildings with a rateable value under £2,900, until they’re reoccupied.

Did you know?

If you run the only village shop, post office, pub or petrol station in a small, rural community, you may be eligible for Rural Rate Relief. This means you might not have to pay business rates at all – just one of the many benefits of country living.

How are business rates calculated?

Business rates are calculated using the property’s rateable value. This is an estimate of its rental value on the open market on a specific date.

The rateable value is set by the Valuation Office Agency (VOA) and is used by your local council to work out how much business-rates tax you’ll need to pay.

Usually, the VOA recalculates the rateable value of a business property every five years. The current one, which came into effect on 1 April 2017, is based on values from 1 April 2015.

How can I check the rateable value of my property?

You can check the rateable value of your property on the gov.uk website.

You can also use the VOA service to compare your building to similar business properties in your local area. If you think the valuation for your property is wrong, you can ask for the details to be changed.

How much will my business rates be?

Once you know the rateable value of your property, you can estimate how much your business rates will be. To do this, you’ll need to multiply the rateable value of your property by the ‘multiplier’, which applies to your business. Multipliers are set rate amounts decided by the government.

If your business is England, you can use the government’s business rates calculator to estimate how much tax you’ll need to pay. 

Business rates multipliers are different for Wales and the City of London.

How do I pay business rates?

Business rates are paid directly to your local council. A bill will be sent to you every year in February or March.

You can pay your business rates on your local council’s website. You can use the council website to apply for relief or bring up any disputes about your payment.

You can also set up a direct debit to pay in instalments, which is a handy way to make sure your payments are made on time.

If you don’t pay, you’ll be sent a reminder. If you still haven’t paid after two reminders, you’ll be sent a final notice and could end up with a court summons and a Liability Order.

Coronavirus business rates relief

The government is offering financial support during the COVID-19 pandemic, including business rates relief for certain businesses.

As they’ve been particularly affected, businesses in the retail, leisure and hospitality sectors will be given a business rates holiday. The same goes for nurseries in England. This means they won’t have to pay business rates for the 2020-2021 tax year. If your business qualifies for the business rates holiday, you don’t need to do anything. Your local council will apply the discount automatically.

To find out what financial support there might be for your business during the coronavirus pandemic, contact your local council or visit the gov.uk website. You can also find out what guidance and support there is for businesses in Northern Ireland, Scotland and Wales.

What is Small Business Rate relief?

There are a number of discounts available for businesses through local councils. One of these is Small Business Rate relief.

You should be able to get Small Business Rate relief if:

  • Your business property has a rateable value below £15,000
  • Your business only uses one property or has more than one under a certain value

Contact your local council to find out if you’re eligible and to apply for Small Business Rate relief.

Even if you don’t qualify for relief, your bill might still be lower than standard if your property has a rateable value below £51,000.

You might also get a temporary discount on your business rates if your property has been affected by local disruption, like flooding, building works or roadworks.

Do I have to pay business rates if I work from home?

If you use a small part of your home, like the spare room, to run your business, you generally won’t be charged for business rates.

You might be charged if:

  • You have a shop and live in the flat above
  • You sell things directly to people from your home
  • You employ anyone at your property

Be aware that if you employ anyone, even just one person, you’ll also need employers’ liability insurance.

If you’re not sure if you should be paying business rates, contact the VOA for further help.

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