Business rates are taxes which are charged on most non-domestic premises including offices, shops, warehouses and factories. The rates are collected by your local council and used to pay for local services.
Related: A guide to paying corporation tax
How it works
Business rates are calculated using a formula based on the rateable value of the property, which is calculated by the Valuation Office Agency in England and Wales and by the local assessor in Scotland.
The rateable value of a property is based on its estimated open market rental value on a specific date. The business rate you pay is worked out by multiplying the rateable value of your property by a business rates multiplier, which is set by central government. In Scotland, rates are calculated using the rateable value set by the local assessor and the ‘poundage rate’ – a proportion of the property’s rateable value – which is set by the Scottish Government.
The practicalities
As a small business, you may be eligible for small business rate relief, which kicks in if you only have one rateable property and its rateable value is less than £15,000. If you’re property value is below £12,000 you get 100% relief provided you don’t have a second property. From £12,001 to £15,000 your rate of discount goes from 100% to 0%. You will need to contact your local council to apply for small business rate relief as it is not levied automatically.
Things to consider
If you think the current value of your property is wrong, you can appeal to the Valuation Office Agency and ask them to correct the details you think are incorrect. If you and the VOA can’t agree, you can then appeal your rates through the Valuation Tribunal. The appeals system in Scotland and Ireland operates differently – further details at www.gov.uk/business-rate-appeals.
Top tip
If you work from home, you may have to pay business rates on the part of the property that you use. This is a grey area as it partly depends on whether you use a completely separate part of the house, or whether you work in areas that are also used for domestic purposes. It can also vary from council to council. If you think you may be liable, you should contact your local council for advice.
Case study
When Bruce McMichael moved into his home near Shrewsbury, he converted a barn on the land into an office, from where he now runs a company that publishes a quarterly magazine, Taste Shropshire & The Marches. Rather than wait for the council to find him, he asked for the property to be assessed. As a result, he pays business rates on the former barn, which is now an office for his two staff, and council tax on his home. He said: “The house is a converted barn and it had two other buildings with it. One was an old dairy shed, and we converted it into an office. It is separate from the house, and three of us work there.” Bruce said the council also laid down rules on what type of business he could run from the office: “The council is keen on office-based businesses -which we are -but we couldn’t, for example, run a garage or a metal bashers or a shop where you have lots of traffic”.
Related: A guide to taxation in the UK