What are business rates? A guide for small businesses

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What are business rates?

Business rates are one of the UK’s oldest taxes; its origins can be traced back to the Poor Law of 1601. Business rates can be roughly defined as the tax paid for the occupation of a non-domestic property. They approximately correspond to 50 per cent of the annual rent of the property. Business rates are based on a specific value, known as “rateable value” and all commercial properties are valued on the same day.

Non-domestic rates or business rates are the way that those who occupy commercial (non-domestic) property contribute towards the cost of local authority services. They are administered and collected by local authorities. Under the business rates retention arrangements introduced in April 2013, authorities keep a proportion of the business rates paid locally. However, business rates are a controversial tax as they represent one of the biggest overheads for business.

Who sets non-domestic rates?

Business rates are set by central government more specifically the Valuation Office, an agency of Her Majesty’s Revenue and Customs (HMRC). The VOA calculates your business rates based on “rateable value” (RV). It compiles and maintains a full list of all rateable values. The rateable value of your property is shown on the front of your bill.

This broadly represents the yearly rent the property could have been let for on the open market on a particular date specified in legislation. For the current 2023 rating list, this date was set as 3 April 2023.

The Valuation Office Agency may alter the valuation if circumstances change. The ratepayer (and certain others who have an interest in the property) can also check and challenge the valuation shown in the list if they believe it is wrong.

It is also important to note that business rates are handled differently in Scotland and Northern Ireland.

>See also: What is the Valuation Office Agency? A guide for small business

How do business rates work?

It is important to understand how non-domestic rates work to ensure that your rateable value is 100 per cent correct. Business rates can be estimated using the multiplier set by the VOA. The current multiplier is around 50p to the pound and is demonstrated in the table below:

Sole Trader Personal Allowance vs Earnings

Earnings BracketPersonal Allowance

£0 – £100,000£12,750

£100,001 – £125,140Decreases by £1 for every £2 of income over £100,000

Over £125,140£0

As of 2023/24/25

The large multiplier is applicable to larger businesses with a RV of £51,000 and above and all premises which are empty with a RV of £2,900.

Another vital part of the rating system to understand is the new appeals scheme launched by the VOA in 2017 known as Check, Challenge, Appeal (CCA). This scheme places the onus on the ratepayer to check their assessment before challenging or appealing. The three stages are:

Check: At this stage factual matters about the property need to be carefully confirmed. Once the Check document is submitted the VOA has 12 months to consider it and respond.

Challenge: Once the facts have been confirmed and within four months of the Check decision, a detailed assessment accompanied with a valuation will make up a typical Challenge document to send to the VOA to change the RV. You cannot submit a challenge against the same valuation, for the same reason, more than once. If you do your submission will not be valid. Finally, the VOA will issue a decision notice on the Challenge submission accordingly. The matter should then be finalised. However, should the VOA disagree with your Challenge there is a right to appeal.

Appeal: Your appeal will need to be taken to the Valuation Tribunal for an independent review within four months of the challenge decision. If the case does reach the appeal stage, the appellants can present their case to a panel who will cross examine the case. A decision will then be issued 28 days after proceedings.

Understanding how business rates work and the procedures to challenge the current assessment can be complicated. Our expert team at Colliers can help represent and advise you.

>See also: How can I reduce my business rates in England? A small business guide

Who pays non-domestic rates landlord or tenant?

Non-domestic rates are paid by the occupier of the premises. This will usually be the landlord or the tenant. In some cases, the landlord of the property charges the occupier a rent which also includes the business rates. The tenant and landlord can decide who is responsible to make the payment. However, the bill remains in the name of the occupier. If the bill is not paid, action will be taken against the occupier.

Properties that are empty still need to pay the bill that is due. If there is no occupier, the rates bill falls onto the landlord after a three month period. This is usually the full bill. However, some properties can get extended empty property relief. Industrial premises (for example warehouses) are exempt for a further three months, listed buildings – until they’re reoccupied, buildings with a rateable value under £2,900 – until they’re reoccupied, and properties owned by charities – only if the property’s next use will be mostly for charitable purposes.

Rating experts can advise you and check that you are paying the correct amount.

How much are business rates?

Rateable value represents the rent a property could have been let for on a certain day set in law. It may not be the actual rent payable on this date as the law makes assumptions based on the property’s condition. The rateable value is not the amount that you pay but is used by councils to calculate your rates bill.

Depending on individual circumstances, a ratepayer may be eligible for a rate relief (i.e. a reduction in its business rates bill). There are a range of available reliefs. Some are permanent reliefs, but temporary reliefs are often introduced by the government at Budgets. Ratings experts can advise you here.

In light of Covid-19, retail, leisure and hospitality businesses were granted a 75 per cent rate relief up to the cash cap value of £110,000 per business. This will continue into the 2024/25 tax year.

>See also: Business rates review 2021 – what your small business can expect

How to register for business rates

To register for business rates, you can contact a reputable firm of rating surveyors who can contact the local council to inform them of your occupation if it is a new site that needs to be assessed. Otherwise, you can check your business rates on the VOA website and can compare properties with similar size, locality and market to your property.

However, business rates can be very technical and confusing and there are a lot of legal statute and rules to adhere to when appealing, therefore we suggest if you need advice to get in contact with a qualified representative to assist you.

Sophie Attwood is a director of rating at Colliers and head of rating in the Liverpool office