How are business rates calculated for small firms?

Just as you have to pay council tax on your home, 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.

This guide will help you understand what business rates you might have to pay in England, 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 you should be able to pay your bill in instalments 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.

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 here.

Rateable values are based on a previous valuation of the market rent. The last Valuation Office Agency (VOA) revaluation took effect on 1st April 2023.

The council then multiplies the rateable value by the standard (rateable value over £51,000 p.a.) or small business multiplier.

For 2023/24, the standard multiplier is 51.2p, and the small business multiplier is 49.9p.

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 have a rateable value of £10,000, then they will work out your business rates as £10,000 x 49.9p = £4,990.

If your business is eligible for one of the business rate reliefs, such as transitional or small business rates relief (see below), then your final bill will be reduced further – and sometimes you will not have to pay rates at all.

You can access the complete list of available rate relief schemes on the GOV.UK site.

Small business rate relief

Your business will qualify for small business rates relief if the rateable value of your premises is £15,000 or less. This type of relief is dealt with by local councils.

• You pay no rates at all if the rateable value is £12,000 or less.
• Between £12,001 and £15,000, you will receive between 100% and 0% rates relief.
• So, if your rateable value is £13,500, you will be eligible for a 50% discount under the scheme.

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.

The official guidance states that you won’t typically have to pay rates if you “use a small part of your home for your business, for example if you use a bedroom as an office”, or if you sell goods via the post.

However, let’s say you have employees who work with you at your home, or you converted your garage to an office or workshop and didn’t use it for anything domestic, then you might 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.

Business Rates resources

If you want to estimate your business rate bill for any part of the UK, this page explains how to do it, and what to do if you think your valuation is wrong.

There are relief schemes for some types of organisations 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 the information contained in this article.