Business rates are charged on most non-domestic properties. If you occupy a building that is wholly or partly used for business purposes, then you’ll almost certainly be required to pay business rates. So if you’re running a pub, a shop an office or a factory, business rates will be one of your fixed costs.
Business rates are one of many substantial and complex taxes that businesses have to pay and account for. We’ve put together answers to some of the most commonly asked questions to help unravel some of the complexities. Take a deep breath and read on, or you may prefer to look the other way and seek advice from your professional accountant.
Who pays business rates?
Most businesses pay business rates. Rates are normally payable by occupiers, rather than the owners of commercial properties.
Why do I have to pay business rates?
Business rates contribute to local services. In the City of London, part of the proceeds also help to pay extra for the Police Service, security and contingency planning. Business rates across London are collected by your local London borough council. Local councils retain 50% of business rates, encouraging councils to unlock business growth potential in their areas. A government proposal that local authorities retain 100% of business rates is currently under review.
How are business rates calculated?
Business rates are calculated by multiplying the property’s rateable value by the annual business rates multiplier. Business rates depend upon the property value. Your property’s rateable value is set by the Valuation Office Agency (VOA). The VAO is part of HM Revenue and Customs. The multiplier is set by the government and determines the tax rate. The multiplier indicates the percentage of the rateable value, or pence in the pound.
How are rateable values calculated?
The rateable value is based on an estimate of the annual rent a property could have earned on a particular date. Rateable values are currently calculated by the VOA from an estimate based on the property’s open market value on 1st April 2008. Approximately every five years the government adjusts the rateable value (revaluation) to reflect any changes in the property market. The most recent revaluation uses calculations from the property market on 1st April 2008 (the use of those rateable values came into effect on 1st April 2010). The next revaluation is due in 2017. The rateable value can change if there are changes to the property, such as an extension, or if part of the building is demolished.
What determines the annual business multiplier?
To calculate business rates the rateable value is multiplied by the annual business rates multiplier. This figure is set by the government on the 1st April each year and is increased each year according to inflation. The City of London sets its own multiplier. The multipliers vary according to location and size of business. There are different rates for England, Wales and the City of London, as well as for small businesses in each of those areas. For 2016/17 the multiplier for England is 49.7 (48.4 for small businesses), and 50.2 for the City of London (48.9 for small businesses). Wales has a multiplier of 48.6 as its standard.
When do I have to pay?
Your local council issues your business rates bill around February or March. Business rates are normally due on the 1st April. You can pay by monthly instalments, quarterly, half yearly or annually.
What do I do if I think the rateable value is incorrect?
Contact the Valuation Office Agency in the first instance. You can appeal against the rateable value. The VAO will advise you on the appeals process. You will still need to pay your rates bill while the appeal is being processed.
When are business rates applied to new properties?
A completion notice will be issued by your local council. This is done when the council thinks a new property build is finished or can be finished by a particular date. Business rates are effective as soon as the property has been added to the rateable value list by the VOA. You can appeal against this start date through your local council.
Do I qualify for small business rate relief?
As a small business you can qualify for rate relief if your business only uses one property and the property’s rateable value is less than £12,000. If your business doesn’t qualify for relief, and your property has a rateable value below £18,000 (£25,500 in Greater London) you are still considered a small business for the purpose of the small business multiplier.
Up to 31st March 2017, the level of small business relief has been increased for eligible small businesses. For eligible businesses where the rateable value is up to £6,000, no rates are payable. The rateable value between £6,001 and £12,000 is tapered. You will need to contact your local council to apply for small business rate relief.
You may also qualify for relief if you’re a charity or in an enterprise zone.
Can I contest the rateable value?
Yes, there is an appeals process. You will need to contact your local council. It’s worth knowing that the appeals process is under review. In October 2015 the government released a consultation paper detailing a new business rates appeal system, ‘Check, Challenge, Appeal’ (CCA). They are currently fine tuning the technical details, but the new system is expected to take effect from 1st April 2017.
Mike James, an independent content writer and graphic designer – working with Chartered Accountants Wellden Turnbull on this and a number of financial posts.