business rates are a crucial aspect of running a business that often goes overlooked by many entrepreneurs. This form of taxation, imposed by local authorities in the UK, is based on the rateable value of a commercial property and can have a significant impact on the bottom line of a company. Understanding how business rates work and how they are calculated is essential for any business owner looking to lease or purchase commercial property.
In the UK, business rates are essentially a tax on non-domestic properties, including shops, offices, warehouses, and factories. The rates are set by the government but collected by local authorities, who use the revenue to fund local services such as schools, roads, and police services. The amount that a business pays in rates is calculated based on the rateable value of the property, which is determined by the Valuation Office Agency (VOA) in England, the Scottish Assessors in Scotland, and the Land and Property Services in Northern Ireland.
The rateable value is an estimate of the open market rental value of a property on a given date, assuming it is in a certain state of repair and without any furnishings or fittings. The rateable value is reassessed every few years to reflect changes in the property market, and all non-domestic properties are given a rateable value by the VOA or equivalent agency. Once the rateable value has been determined, it is multiplied by the so-called “multiplier” set by the government to arrive at the amount of business rates owed.
The multiplier is set annually by the government to ensure that the total revenue collected from business rates remains relatively constant from year to year. The multiplier is currently set at 49.9p in England, 52.4p in Wales, 49.1p in Scotland, and 28.112p in Northern Ireland for the 2021/22 financial year. The multiplier is applied to the rateable value of a property to calculate the amount of business rates owed, with businesses paying the full rate if their rateable value is £51,000 or more.
business rates can be a significant expense for businesses, particularly those with large commercial properties in prime locations. However, there are ways in which businesses can reduce their liability for business rates and potentially save money. One common strategy is to challenge the rateable value of a property if a business believes it has been overvalued by the VOA or equivalent agency. This process, known as “appealing your business rates,” involves submitting evidence to support a lower rateable value and can result in a reduction in the amount of business rates owed.
Another option for businesses looking to reduce their business rates liability is to take advantage of various reliefs and exemptions that are available. Small businesses occupying properties with a rateable value of less than £15,000 in England or £18,000 in London can qualify for Small Business Rate Relief, which provides a discount on their rates bill. There are also reliefs available for businesses occupying rural properties, charities, and not-for-profit organizations, as well as empty properties and those undergoing renovation.
business rates are a complex and often misunderstood aspect of running a business, but they are a necessary part of doing business in the UK. Understanding how business rates are calculated and how they can be reduced is essential for any business owner looking to lease or purchase commercial property. By staying informed about business rates and exploring ways to minimize their impact, businesses can ensure that they are not paying more than they need to and can focus on growing their operations and serving their customers.