Dictionary
Debitoor's accounting dictionary
Business rates

Business rates – what are business rates?

Business rates, also known as ‘non-domestic rates’, are a tax on the occupation of property for non-domestic purposes.

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Essentially, if you’re using a property for reasons other than as a place to live, you have to pay business rates.

When do you have to pay business rates?

Business rates are normally charged on non-domestic properties. Non-domestic properties include things like:

  • Shops, cafes and pubs
  • Offices
  • Warehouses and factories
  • Guesthouses or holiday rental homes.

You’ll need to pay business rates any time you’re using a building, or a part of a building, for non-domestic purposes. If you’re required to pay business rates, they count as an allowable expense for tax purposes.

How are business rates calculated?

Business rates are calculated according to your property’s ‘rateable value’. The rateable value is set by valuation officers of the Valuation Office Agency (VOA) and is calculated according a number of different factors, for example, its size and location.

How to estimate your business rates

It’s possible to estimate your business rates by multiplying the rateable value of your property by the correct ‘multiplier’ which is an amount set by central government every year.

The multiplier that you use to estimate your business rates depends on rateable value as well. A standard multiplier is used for properties with a rateable value over £51,000 and a small business multiplier is used for rateable values under £51,000. Different multipliers are used in Wales and the City of London to the rest of England.

In England, a property’s business rates are calculated by multiplying the rateable value by the multiplier. For example, Joey’s business has a rateable value of £15,000, and therefore should be multiplied by the small business multiplier. In the year 2019-2020, this was 49.1p (£0.491). To estimate his basic business rates is then simple: £15,000 x £0.491 = £7,365.

When are you exempt from paying business rates?

There are some types of buildings that do not have to pay business rates.

Types of buildings that do not pay business rates

Properties that are exempt from paying business rates include:

  • Agricultural land and buildings
  • Buildings that are registered for public religious worship or as church halls
  • Buildings that are used to support the welfare of disabled people (including buildings that are used to train people in disability welfare).

It is important to check carefully check that you’re exempt from paying business rates on your property, as there are many strict requirements.

Business rates and empty properties

You may not need to pay business rates if your property is empty and unused. Since 1 April 2008, empty properties haven’t had to pay business rates for the first 3 months that they’re unoccupied. After this time, owners are then required to pay full business rates. However, industrial and warehouse properties can qualify for an additional three months' exemption.

Empty buildings don’t receive an indefinite exemption from paying business rates, as these payments are intended to incentivise owners to bring vacant warehouses, factories, shops and offices back into use.

In certain circumstances, properties can get extended empty property relief. Empty properties are exempt from paying business rates even after the first three months if:

  • it's a listed building
  • it has a rateable value under £2,900
  • it's owned by a charity, and its next purpose of use will be charitable
  • it's a community amateur sports club building, and its next use will be mainly as a sports club.

Business rates and working from home

As a general rule, you won’t need to pay business rates if you’re using just a small part of your home for business purposes. For example, if you’re a freelancer and you work at your computer, you don’t need to pay. However, there are some circumstances in which you will be required to pay business rates.

If your property is split into domestic and business parts, you’ll need to pay business rates for the parts that aren’t used for domestic purposes. For example, if you run a corner shop and live above it, you’ll need to pay business rates on the shop part of the property as it is separated from your living areas.

Equally, if you sell things to customers who visit the property, you’ll have to pay some business rates. For example, you may have a business where you sell products directly from your garage. Also, if you employ anybody at the property, then it is classed as a workplace, and business rates will apply.

How to check your business rates

If you’re unsure whether you should be paying for business rates, or you want to know the ‘rateable value’ of your property then you should contact the VOA where it is possible to check your business rates. You can also use this tool if you think that your property has been wrongly valued, or you would like to request a change to your property’s ‘rateable value’.

The VOA service can also be used to search for the valuation details of other properties so that you can compare likeness.

When can you get business rates relief?

Some properties may be able to receive a discount from their local council on their business rates. You may be entitled to ‘small business rate relief’ if your rateable value is less than £15,000 for example. Certain locations or types of business may also receive business rate relief.

Equally, it’s possible to receive a reduction on your business rates if your property is affected by significant local disruption, for example, if there is flooding, construction, or temporary roadworks. Using the VOA service. You , you can report significant changes to the local area that may have impacted on your rateable value. These changes may then be reflected in changes to your business rates.

What do your business rates pay for?

Your business rates are used to fund various services throughout the country. Your local council receives a proportion of your business rates and they’re used to help to fund services such as keeping the streets clean, safe and well-lit at night, and improvements to public spaces such as local parks and public facilities.

The Greater London Authority also receive some of the payments and they are used to fund other essential services such as the police and fire services. Some of your business rates also go to central government.