Just as you have to pay council tax on your home, so your business must cough up business rates for its premises. They can be a pain and an easily overlooked cost when you are starting your business. In some circumstances, you may even have to pay business rates if you run a business from home.
This guide will help you understand what business rates you might have to pay, how to challenge the rates set, and even if you can claim any relief.
Most business rates bills are sent once a year, just like council tax, and are paid in ten equal payments throughout the year. If you miss payments you may be forced to pay the outstanding bill for the whole year or face court action.
The money gathered by business rates is spent in the same way as council tax: on local services such as the police and fire service. Rates are due on most business premises or other non-domestic properties, such as shops, offices, pubs, warehouses and factories.
There are exceptions, including fish farms, most farm buildings and some types of property used by disabled people. There are also rules affecting holiday homes and bed & breakfasts.
If the building has split use, for example you live in a flat above a shop; you will pay business rates on the shop and council tax on the flat.
Working from home
But what if you work from home? Well the general rule is that you pay business rates on the part of your house that you use for work, and council tax on the rest of the property.
Whether your local council charges you business rates or not will depend on the kind of work you do and how much commercial work is done in the house. If the use of a room stays essentially domestic (for example you have a PC in your living room), then you won’t be charged business rates.
But let’s say you converted your garage to an office or workshop and didn’t use it for anything domestic, then you may be liable to pay business rates.
Every case is different, and your local council’s valuation officer will consider how often the room is used for business and to what extent it dominates the room, plus any modifications made to the house for the business.
Seeing as you probably want to minimise your chances of having to pay business rates on your property, it would make sense to ensure there continues to be domestic use of any room used for business, even if it is as simple as using your converted garage as a cinema room as well as an office.
Business Rates – Valuation process
So how does your local council work out what the business rates on your premises will be? Their valuation officer will work out the rateable value of the building – that’s a professional view of the annual rent for a property if it were vacant and let on the open market. You can find out what the current rateable value of your premises is on the VOA site.
Rateable values are based on a previous valuation of the market rent. And the rateable value must be re-valued every five years. The last revaluation took effect from 1st April 2010.
The council then multiplies the rateable value by the Uniform Business Rate which is set by the government. Each year this rate cannot rise by more than the rate of inflation. Small businesses in England get a slightly lower rate of 42.6p (2011/12), while the standard rate is 43.3p. In Wales, the rate is 42.8p.
Here’s what all of that means in practice. If you run a small business and your local council has decided that your business premises has a rateable value of £10,000, then they will work out your business rates as £10,000 x 42.6p = £4,260.
Business Rates resources
If your rateable value is less than £18,000 (or less than £25,500 in Greater London) you may benefit from the Small Business Rate Relief scheme. You will need to register your eligibility with your local authority.
For a full explanation of the rate relief schemes available, visit the VOA site.
If you want to estimate your business rate bill for any part of the UK, this page of the Gov.uk site explains how to do it.
There are relief schemes for some types of organisation such as charities and amateur sports clubs. And some rural businesses including village shops and petrol stations can claim relief.
If you think your building has been overvalued there is also an appeal process.
Remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.