Business rates represent one of the biggest costs to the nation’s shops, offices, pubs and other businesses. Get to grips with how they work with our Q&A.
Q. What are business rates?
A. Business rates are a tax charged on most commercial properties in England and Wales (there are different rules in Scotland and Northern Ireland).
Types of properties include:
Holiday rental homes and guest houses
Business rates are still likely to apply even if only part of a building is used for commercial purposes.
Q. Who pays business rates?
A. Local councils send out business rates bills in February or March each year to the occupier of the property – either the landlord or the tenant – who will be responsible for paying them.
Next to rent and staffing costs, business rates represent one of the biggest bills that UK businesses face.
Q. How are business rates calculated?
A. Business rates are based on a commercial property’s 'rateable value' which means its rental value on the open market, as estimated by the Valuation Office Agency (VOA).
The rateable value is then multiplied by a 'multiplier' – also known as 'poundage' – which is currently set by the Government in accordance with the previous September’s Retail Price Index (RPI) measure of inflation.
Other contributing factors considered include the size of the premises, type of business and value of any machinery and equipment.
The higher a business' rateable value, the more its business rates will cost.
Q. How often do business rates change?
A. Business rates are normally revaluated every five years when properties are given a new rateable value by the VOA.
A revaluation in England and Wales was due on 1 April 2015, but the Government deferred it for two years due to the General Election and it took place in April 2017 instead.
As business rates are based on rateable values from two years prior, the most recent revaluation was based on values from April 2015.
In his 2017 Budget speech, the Chancellor Philip Hammond announced that, from the next revaluation in 2022, further revaluations would take place every three years, opposed to five.
He said it would reduce the size of 'changes in valuations', which invariably means rises.
You can check your valuation and estimate your business rates here.
Q. How much are business rates worth to the Government?
A. In 2016 to 2017, the Government is expected to raise an estimated £29bn from business rates.
Q. Why are business rates controversial?
A. Firstly, the latest revaluation – which landed after a seven-year freeze – has seen rates for many businesses rocket, particularly in London and the south east where the value of commercial premises has risen considerably during this time.
This has made it difficult for smaller, independent outfits to meet their financial commitments.
According to the Federation of Small Businesses, the average London 'micro' business (which employs fewer than 10 people) will be forking out £17,000 a year just in business rates from April 2017.
Some unfavourable changes were also implemented as part of the recent revaluation. For example, 'small business rate relief' had been available on commercial properties with a rateable value of less than £12,000. But on 1 April this threshold was increased to £15,000.
However, the Government – which described April’s revaluation as a 'revenue-neutral process' – promised small businesses which no longer qualified for relief, that their bill would not increase by more than £50 a month from 1 April 2017 to 31 March 2018.
This was on the back of the introduction and re-juggling of other available reliefs and tapers which you can learn more about here.
Very small businesses (with a rateable value of £12,000 or less) stopped paying business rates at all from April – which was double the previous limit of £6,000.
Q. What happens next to business rates?
A. The next revaluation will take place in 2022, at which point further revaluations will happen at three-year intervals rather than five.
From April 2018, business rate 'multipliers' will start to be linked to the Consumer Price Index (CPI) measure of inflation, rather than the current RPI measure – two years earlier than planned.
According to the Government, the move will save the nation’s businesses an estimated £370m in the first year.