Business rates are one of those things that are an unavoidable running cost for most businesses. But getting your head around if you need to pay them, how they are calculated and how to appeal them can be a mind-field.
Barry Davies, diversification specialist and chartered surveyor at Davies & Co explains all in his guide to understanding business rates for rural businesses.
What are business rates?
Just as homeowners and tenants pay council tax to support local services, most businesses that occupy non-domestic or commercial properties, such as pubs, offices and shops, will attract business rates. However, there are some exemptions to this.
How do I know if I need to pay business rates?
Most businesses will encounter business rates at some point or another, and therefore this is a cost that’s worth understanding and budgeting for. You can check if your business is listed on the Valuation Office Agency (VOA) website here. There are certain properties and buildings that are exempt from business rates. These include:
- Agricultural land and buildings
- Fish farms
- Buildings used for training or welfare of disabled people
- Building registered for public religious worship or church halls
It is also worth noting that although farmland and buildings may be exempt, buildings that are used for offices or other business activities such as diversifications, may not be exempt. Likewise, for those that own stables, business rates will need to be paid on these unless the horses are used for farming or the stables are within your garden.
See also: The tax downside of diversification
For empty buildings, you will not have to pay business rates on these for the first three months. After this period, most businesses will be expected to pay the full rate.
You can find out more about exemptions here.
What about if I work from home?
If you have a business that is run from home, you may need to pay business rates in the following circumstances:
- Your property is split into domestic and business parts for which you will need to pay rates for the non-domestic section
- You sell items to people who visit the property such as beauty or therapy sessions
- You employ anyone at your property
How are business rates calculated?
Every five years, in England and Wales, the Valuation Office Agency (VOA) revaluates the rateable value of land and buildings across the country. The VOA will then advise local councils of the proposed rateable values, to which the council then calculates new business rate bills based on a multiplier set annually by the central government. The current standard business rate multiplier is 47.9p.
How is my rateable value assessed?
Two primary valuation methods are used to calculate rateable values:
- Rental value – this is based on open market rental values. Each commercial building and land area is measured by the VOA and a value attached in £/sq m
- Financial – this is based on individual business accounts over a three-year period with a full receipt and expenditure analysis to ascertain profitability in order to arrive at a fair and reasonable rent that would be paid
Other factors that are also taken into account by the VOA are historical planning permissions, location of the commercial property, seasonality of the business and comparable evidence.
When is the next revaluation due?
The last revaluation took place in 2017, with values based on an antecedent valuation date of 1 April 2015. Therefore, the next revaluation is due in 2021, however the key date in which new rates will be based on is 1 April 2019.
Are there any relief schemes available?
The Small Business Rates Relief (SBRR) scheme was introduced in 2005 to help small businesses. It is available to ratepayers that have one main property in England. Those who are eligible then have their rates bill calculated using the small business non-domestic rating multiplier.
Under the current assessment, eligible properties with a rateable value of £12,000 or lower will be entitled to 100% relief. Rateable values from £12,000 to £15,000 receive tapered relief.
There are also exemptions which mean farm building occupied together with agricultural land of at least two hectares are fully exempt.
What happens if I don’t agree with my rateable value?
A new business rates appeal system was introduced in England in 2017 called ‘Check, Challenge, Appeal.’
Initially, all ratepayers are required to check and confirm the accuracy of the facts on which their rateable value has been calculated via an online service. Changes can be submitted at this stage if necessary, and most enquires are expected to be resolved during this stage.
However, if you are not happy with your rateable value after this stage you can then challenge, which must begin within four months of the end of the check stage. There are many grounds on which a challenge can be made, but documentation including supporting evidence and revised proposals must be submitted with the challenge.
If an agreement is not reached during the challenge phase, the VOA will issue a letter which will formally end the challenge. The ratepayer then has four months in which to lodge an appeal against the decision should they wish.
More information on this can be found here.
Who is responsible for paying business rates in a rental arrangement?
The liability for paying business rates is the responsibility of the occupier of the property, or the owner if the property is unoccupied. For example, if you decide to rent out offices on your farm, the business or individual renting the offices would be responsible for paying business rates.
How do I pay business rates?
Just like council tax, businesses tend to be billed on a monthly basis for business rates. Depending on your council, a direct debit can usually be set up to withdraw the required amount over a 10 or 12-month period depending on your desire.
Understanding business rates and if you need to pay them is a must for any business owner. If you still have a question or are looking for help with appealing current rates, seeking professional help is advised.