Business rates explained

December 2021
 


In another article we talked about the costs of starting a business and one of the costs listed is business rates. So, if you have business premises - or in some cases, even if you work from home - you need to factor them in.

The cost can be a big deal when you’re a small business, so read on for an overview of how to calculate your business rates, and a quick guide to the exemptions and reliefs available.

What are business rates?

Think of business rates like a council tax, but for businesses. It is charged on work places or ‘non-domestic’ properties such:

  • Shops, cafes and pubs

  • Warehouses and factories

  • Offices

  • Guesthouses and holiday rental homes

The money is collected by your local authority and goes towards providing services such as: police, fire, waste disposal and street maintenance. Your local council will send you an annual bill in February or March. Just like council tax, business rates are paid in ten equal instalments.

Who has to pay business rates?

Business rates are paid by the occupier of the non-domestic property. So, even if you don’t own the property but you are a tenant who uses the property for business, you pay the rates.

What about if you work from home?

Generally, you won’t need to pay business rates if you’re using just a small part of your home for business purposes, like a desk in a room. Or, if you are selling goods by post.

However there are some circumstances where you will be liable for business rates if you are working from home:

  • If you have a designated business area separate from your living area, like having a corner shop and living above it
  • If you employ people to work at your property

  • You sell goods to people who visit your property

  • You’ve made changes at home to accommodate your business, such as converting a garage into a nail bar.

If you’re unsure whether you should be paying business rates, contact the government’s Valuation Office Agency (VOA).

How are business rates calculated?

To explain how your business rate is calculated let’s break the process down into 3 easy steps:

Step 1:

Find out the ‘rateable value’ of the property.
This is the rental value of the property as calculated by the VOA. You can find this out by using the government’s online tool.

Step 2:

Find out the appropriate value ‘multiplier’ 
This is set by the government each year and tells you the number of pence you pay per pound of rateable value. 

Rateable value under £51,000 (for 2021/22) = 49.9pence
Rateable value over £51,000 (for 2021/22) = 51.2pence 

 
Step 3:

Calculate business rate 
Rateable value x Multiplier = Business Rate

              

Example

Let’s pretend you run a café and the property had a rateable value of £17,500.

You would apply the lower multiplier of 49.9pence in the pound.

Therefore your business rate is £17,500 x 0.499 = £8,732.50

Payable in 10 instalments of £873.25

 

Business rate relief

As you can see business rates represent a sizeable cost for a small business. However there is good news in that there are exemptions and ways you can reduce your bill.

It pays to look into this and you should contact your local authority to see if you can reduce your spend on business rates. Here is a summary of the business rate reliefs that are available to business properties in England.

 
BUSINESS RATE RELIEF SAVINGS
Small Business Rate Relief
You will not pay any business rates on a property with a rateable value of £12,000 or less.
 
For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%.
Retail Discount
You could qualify for retail discount if your business is a: shop, restaurant, café, bar or pub, cinema or music venue, or in hospitality or leisure.
Rural Rate Relief
You could get rural rate relief if your business is in a rural area with a population below 3,000.
 
You will not pay business rates if your business is the:
  • only village shop or post office, with a rateable value of up to £8,500
only public house or petrol station, with a rateable value of up to £12,500
Charitable Rate Relief
Charitable rate relief of up to 80% is available if a property is used for charitable purposes.
Enterprise Zone Relief
If you’re starting up or relocating to an enterprise zone you could qualify for relief which may be as much as £55,000 a year over 5 years.
Nurseries Discount Available if your business is on Ofsted’s Early Years Register, or is wholly or mainly used to provide Early Years Foundation education.
Local Newspaper Relief
£1,500 reduction for properties used as office premises for journalists and reporters on a local newspaper.
Exempted Buildings Relief
Certain properties are exempt from business rates:
  • agricultural land and buildings, and fish farms
  • buildings used for training or welfare of disabled people
buildings registered for public religious worship or church halls
Empty Buildings Relief
You do not have to pay business rates on empty buildings for 3 months. Empty industrial premises (e.g. warehouses) are exempt for 3 months more.
 
The following empty buildings are exempt from business rates:
  • listed buildings until they’re reoccupied
  • those with a rateable value under £2,900 until they’re reoccupied
  • those owned by charities (if its next use will be mostly charitable)
community amateur sports clubs (if its next use will be mostly as a sports club)
Transitional Relief If your property is revalued then your business rates may change. Transitional relief limits how much extra you can pay each year, so that increases are phased in slowly. 
Hardship Relief Councils can reduce your business rates if you can prove they would put you in financial difficulties, or that it would be in the interest of the local community.
 

We strongly recommend that you contact your local authority or visit the government’s own online content for full details on eligibility, and the most current discounts. Business rates relief is handled differently in Scotland, Wales and Northern Ireland.

 

Business rates do’s and don’ts

  • Do find out early on if you have to pay business rates 

  • Don’t assume if you work from home you’re exempt – look into it first

  • Do calculate how much your business rates will be

  • Don’t forget to look into exemptions and relief

 

Related articles

 
 

Let’s talk. We’re Britain’s bank for small businesses. Our Business Banking experts are here to help you with your business, with 25 months’ free day-to-day business banking, as well as 1 year’s free expert business advice from Enterprise Nation. Call 0345 835 3858 or contact us via your business bank account.

 

Everything we publish on Business Talk is provided as general information only. It isn’t advice or an insight into the views of TSB or any of our Partners. This is for information only and should not be relied upon as offering advice for any set of circumstances.

Please think about getting independent financial advice if you want help with your personal situation.

While we make every effort to make sure the content is accurate and up to date, no liability is accepted by TSB Bank for any loss or damage caused by relying on any statement or omission.

Links to external content are provided for information purposes only and not a TSB recommendation of any brand or service.