If you own a small business, you may be required to pay business rates. However, because business rates are linked to property values and revaluations only occur every five years (although this is due to change to every three years), many business owners end up over-paying for several years. In this article, we set out how business rates are calculated, what to do if you believe you’re overpaying and the exemptions that apply.
What are business rates?
Business rates in England are a form of local taxation imposed on non-domestic properties used for commercial, industrial, or business purposes. Local authorities collect them and bring in a substantial amount of revenue for funding local services and infrastructure. If you work from home, you may have to pay these rates on the section of your house used for work purposes.
How to work out business rates
Business rates are calculated on the rateable value of a property. The rateable value estimates the property's annual rental value as determined by the Valuation Office Agency (VOA).
The local council applies a business rates multiplier, known as the national non-domestic multiplier or uniform rate, to the rateable value to calculate the number of business rates payable.
These are usually paid in regular instalments throughout the year, typically in ten monthly payments. The local council sends out bills detailing the amount due and the payment schedule.
Are business rates exempt from VAT?
Yes, as business rates are a type of tax and are outside the scope of ‘goods and services’.
How can I avoid paying business rates on an empty property?
In England, it isn’t possible to completely avoid business rates on an empty property, as empty property rates (also known as vacant property rates) are applicable. However, there are certain exemptions and reliefs available that can reduce the amount payable on an empty property, for example:
- Small business rate relief – if the property is classified as a small business, you may be eligible for small business rate relief (this relief provides a significant reduction in rates for qualified small businesses)
- Empty property relief – for non-domestic properties that are completely empty, there may be a period of relief where the full business rates aren’t payable (currently, the relief period is three months for most properties, after which full rates apply – certain properties, such as industrial properties, have a longer exemption period of six months)
- Charitable or community use – if the property is used for charitable or community purposes, it may qualify for charitable rate relief or community amateur sports club relief (charitable relief means you only pay 20% of your business rates bill, some charities will not pay any business rates)
- Temporary occupation – if the property is temporarily occupied by a caretaker or for short-term use (it may be possible to qualify for empty property rate relief during that period)
If you’re still determining whether you qualify for relief, please contact our friendly lawyers, who can advise you on your options.
Are listed buildings exempt from business rates?
Listed buildings in England aren’t automatically exempt from business rates. However, a specific form of relief is available known as the Listed Building Exemption.
To qualify for the Listed Building Exemption, the building must be officially listed by Historic England or the relevant local authority as being of special architectural or historic interest.
The exemption only applies to the parts of the building that are unoccupied and not used for commercial purposes. If any part of the building is occupied or used for business activities, business rates will still apply to those areas.
Do charities pay business rates?
As mentioned above, charities in England may be eligible for relief or exemption, including:
- Mandatory relief – charitable organisations that occupy properties for charitable purposes may qualify for mandatory relief, also known as charitable rate relief (this relief provides a discount of up to 80% on business rates)
- Discretionary relief – local authorities can grant additional relief to charities beyond the mandatory relief (this may include further reductions or even full exemption – the availability and extent of discretionary relief vary between local authorities)
To qualify for charitable relief, your business must be registered as a charity with the Charity Commission for England and Wales or the appropriate regulatory body in Scotland or Northern Ireland.
The property must be wholly or mainly used for charitable purposes, such as providing education, relieving poverty, advancing religion, or promoting health.
Are business rates going up?
If you believe that the value assigned to your property is too high or if there have been modifications to your property that could potentially lower its valuation, you’ve the option to submit a challenging case to the VOA. To do this, you must register for a valuation account online.
Get legal assistance from LawBite
Understanding how business rates are calculated is crucial for small business owners to ensure they aren’t overpaying and to explore potential exemptions and reliefs.
LawBite offers expert legal assistance to businesses seeking guidance on business rates and other commercial property matters. Our experienced lawyers can provide personalised advice and help you navigate the complexities of business rates, ensuring that you’re aware of all available options. To find out how we can help you, book a free 15 minute consultation today or call us on 020 3808 8314.
