Business rates are a tax on non-residential properties in the UK, including commercial premises, offices, shops, and factories. It is a significant expense for many small businesses and can be a major contributor to their operating costs.
In this guide, we will take a closer look at UK business rates and how they are calculated, covering:
- Business rates meaning
- What are business rates?
- What are business rates based on?
So here’s everything you need to know about UK business rates.
Business rates meaning
For a simple business rates definition, in the UK, most non-domestic properties are subject to business rates. This includes properties used for commercial purposes such as shops, offices, pubs, warehouses, factories, and holiday rental homes or guest houses. If you use a building or part of a building for non-domestic purposes, you will most likely be required to pay business rates.
What are business rates?
Business rates, also known as non-domestic rates, are set by the government and collected by local authorities. The rates are calculated based on the rateable value of the property and the applicable multiplier, also known as the uniform business rate (UBR).
The rateable value is determined by the Valuation Office Agency (VOA) and represents the rental value of the property on a certain date. The UBR is set annually by the government and is multiplied by the rateable value to calculate the annual business rates bill.
The rateable value of a property is reassessed every five years by the VOA. The UK government made changes to business rates to reflect property value changes since 2017. The 2022 Autumn Statement announced the following changes:
- From 2023-24, multipliers will be frozen, resulting in a tax cut of £9.3 billion over the next five years.
- A transitional relief scheme will be introduced to limit bill increases due to changes in rateable values at the 2023 revaluation. The smallest properties will have a five percent cap, while medium-sized and larger properties will have a cap of 15 percent and 30 percent, respectively.
- Business rates relief for retail, hospitality, and leisure will be increased to 75 percent (up to £110,000 per business) in 2023-24 from the current 50 percent.
- If businesses lose their eligibility for small business rates relief due to revaluation, bill increases will be capped at £600 per year from April 2023.
Business rate relief for small businesses
Small businesses may be eligible for business rate relief, which can reduce or eliminate their business rates bill. There are several types of relief available, including small business rate relief, charitable rate relief, and rural rate relief. The eligibility criteria and application process vary depending on the type of relief and the local authority.
The small business rate relief is one of the most useful reliefs available for small businesses with a property valued at less than £15,000. This relief is applicable if your business uses only one property, and offers full relief on properties valued at £12,000 or less.
For properties valued between £12,001 and £15,000, the relief is gradually reduced from 100% to 0%. Even if you do not qualify for small business rate relief, your bill will still be calculated using the lower small business multiplier (for properties valued below £51,000). Apart from small business rate relief, there are other reliefs available, such as rural rate relief and charitable rate relief.
It is worth noting that you will not have to pay business rates on residential properties or on properties used for certain purposes, such as agriculture or religious worship. However, if a property is used for both residential and non-residential purposes, such as a shop with a flat above, then business rates may still be payable on the non-residential part of the property.
You may also continue to see a business rate charge if you sell goods or services to people who visit your property, employ staff on site, or have made significant changes to your home to accommodate your business needs, such as converting your garage into a workspace.
Business rates are a significant expense for many small businesses in the UK. It is important to understand how they are calculated and to explore options for rate relief if eligible. Keeping up to date with changes in the UBR and rateable values can also help businesses to budget for their business rates bills.
Business rate bills
Every year, in February or March, your local council will issue a business rates bill for the upcoming tax year. However, if you want to get an estimate of your business rates bill beforehand, you can do so. If you have any inquiries about your bill, you can get assistance from your council. On the other hand, if you believe that your "rateable value" is inaccurate, you can seek help from the VOA.
What are business rates based on?
Business rates in the UK are based on the rateable value of a non-domestic property. The rateable value is an estimate of the annual rent the property could fetch on the open market, as determined by the Valuation Office Agency (VOA). This value is then multiplied by the current multiplier, also known as the national non-domestic rate, which is set annually by the government.
The multiplier is expressed as a percentage of the rateable value and is usually adjusted each year to account for inflation. The current multiplier for 2021-2022 is 51.2 pence per pound for properties with a rateable value over £51,000 and 49.9 pence per pound for properties with a rateable value below £51,000.
The resulting figure is the annual business rates bill that the property owner or occupier is required to pay to the local council. However, some properties may be eligible for business rates relief or exemptions, such as small businesses, charities, and properties used for certain purposes, such as agriculture or religious worship.
It's important to note that business rates are separate from other property-related costs, such as rent, utilities, and maintenance fees. While the cost of business rates can vary significantly depending on the rateable value of the property and the current multiplier, they are an essential expense for non-domestic property owners and occupiers in the UK.
By now you should have a clear picture of what business rates are and what they mean for you as a small business. Bookmark this page for future business rates queries.