A Beginner's Guide to Business Rates
Business rates are a crucial consideration for commercial property occupiers in the UK. Understanding their complexities can empower businesses to manage these expenses more effectively. This comprehensive guide covers the essentials of business rates, calculations, billing cycles, relief options, strategic cost-saving measures, and useful considerations for businesses.
What Are Business Rates?
Business rates, also known as non-domestic rates, are a tax levied on the occupation of commercial properties, such as offices, retail premises, industrial spaces, and warehouses. Collected by local councils, they help fund public services such as education, policing, and waste management.
Who Pays Business Rates?
Businesses and organisations occupying commercial premises must typically pay business rates. Exceptions include agricultural land and buildings, religious properties, and certain charity-operated facilities.
Calculating Business Rates
Understanding how your business rates are calculated is essential:
Rateable Value (RV): Determined by the Valuation Office Agency (VOA), the RV represents the estimated rental value of the property at a given valuation date. The VOA regularly updates valuations, typically every five years, though this cycle can vary due to legislative changes.
Rates Multiplier (Poundage): Annually set by the government, the multiplier represents the tax payable per pound of RV. Different multipliers exist for small businesses and larger businesses.
The calculation:
Business Rates Liability = Rateable Value × Rates Multiplier
Understanding the Billing Cycle
Annual Cycle: Business rates are billed annually, with the tax year running from 1 April to 31 March.
Payment Options: Typically, payments are spread over ten monthly instalments. However, businesses can request a 12-month payment cycle from their local council.
Relief and Exemptions
There are several relief schemes that can significantly reduce business rates liability:
Small Business Rate Relief (SBRR): Provides relief to small businesses occupying premises with lower RVs. Businesses with an RV below a certain threshold may receive substantial or full relief.
Retail, Hospitality, and Leisure Relief: Special relief schemes often introduced temporarily (especially in response to economic downturns or crises like the COVID-19 pandemic).
Charitable Relief: Charities and registered community amateur sports clubs may receive mandatory and discretionary reliefs.
Rural Rate Relief: Specific properties located in designated rural areas may qualify for additional rate relief.
Empty Property Relief: Commercial properties unoccupied for the first three months (or longer for industrial properties) typically qualify for empty property relief, exempting them from rates during this initial vacancy period.
Strategic Occupation for Savings
Recent regulatory adjustments have significantly impacted empty property relief. From 1 April 2024, commercial properties must now be occupied continuously for at least 92 days to reset the exemption cycle. This allows another 92-day rate-free period upon the subsequent vacancy.
Businesses that strategically manage periods of occupation and vacancy—such as occupying premises temporarily for storage or operational purposes—can significantly reduce their rates liabilities over time, often achieving approximately 50% savings. Specialised firms, like VacatAd, assist clients in navigating these regulatory complexities to optimise savings.
Appeals and Valuation Disputes
Businesses can challenge their property's RV through the "Check, Challenge, Appeal" process provided by the VOA if they believe their valuation is incorrect or unfair. Engaging with a qualified rating surveyor can greatly improve your chances of successfully appealing a rateable value.
Important Considerations
Local Variations: Policies on discretionary reliefs, exemptions, and processes can vary significantly by local council.
Regulatory Updates: Staying informed of legislative changes and local policy adjustments is crucial. Councils often review relief eligibility and billing procedures annually.
Professional Advice: Consult business rate advisors or chartered surveyors specialising in business rates to ensure accuracy and optimise savings.
Preparing for Future Changes
Regular reviews of your business rates obligations, monitoring legislative developments, and engaging proactively with professional advisors can help businesses manage costs effectively over time.
Managing business rates effectively requires understanding their complexities, staying informed about regulatory changes, and strategically planning property occupation and use. With careful attention and professional guidance, businesses can significantly optimise their rates expenditure.
