If you rent or own a property for business purposes, you will usually pay business rates on it instead of Council Tax, which is payable on domestic property.
Business rates are calculated very differently to Council Tax, and it can get a bit confusing.
In this article, we’ll explain which properties pay business rates, how business rates are calculated, and whether you might be eligible for relief on your business rates.
Bear in mind that the information in this article outlines how business rates work in England and Wales only. Read about how non-domestic rates are calculated in Scotland at myGov.scot, and about how business rates are calculated in Northern Ireland at nibusinessinfo.co.uk.
What kind of properties do I need to pay business rates on?
Business rates are charged on so-called ‘non-domestic’ properties, meaning no-one lives there full-time and instead they are home to a business. Properties that are subject to business rates include:
- Shops
- Offices
- Pubs, restaurants and cafes
- Factories and warehouses
- Holiday lets*
Buildings that do not have to pay business rates include:
- Buildings used for farming and agriculture, including fish farms
- Buildings used for the training or welfare of disabled people
- Buildings for public religious worship
- Empty buildings, though only temporarily – after three months, full rates must usually be paid.
If you rent out a storage unit for business purposes, you don’t pay business rates on this. Business rates are paid by the owners of the storage facility itself.
*New rules are set to come into effect for the tax year 2023/24 which will mean holiday let properties must be available to rent for a minimum of 140 days a year and rented out for 70 days in order to qualify for business rates. If your holiday let does not meet these thresholds, you will pay second home Council Tax on the property instead. Find out more in our guide Five things to consider if you are thinking about buying a holiday let.
How are business rates calculated?
Business rates are not paid according to set bands like tax. Rather, they are calculated based on what’s known as your property’s ‘rateable value’.
The Valuation Office Agency (VOA) will work out a figure reflecting your property’s open market rental value. For the 2022/23 tax year, they used values from April 1 2015. However, for the 2023/24 tax year, they use its value on April 1 2021.
In order to work out your property’s business rates, the rateable value is then multiplied by a set figure, either a ‘standard multiplier’ or a ‘small business multiplier’. If the rateable value of your property is £51,000 or more, you use the standard multiplier. If it is less than £51,000, you apply the small business multiplier instead.
For both the 2022/23 and 2023/24 tax years, the standard multiplier is 51.2 pence and the small business multiplier is 49.9 pence.
So, in other words, either way your business rates work out to approximately 50% of your property’s rental market value, though it will always be slightly more than half if the property is worth over £51,000 and slightly less than half if it is worth less.
For example, if you have a business property in England, and the rateable value of the property is £10,000, then your business rates are worked out by multiplying 10,000 by 0.499, for a total of £4,990.
However, you may be able to reduce your business rates further using business rates relief, detailed below.
Rateable values for pubs
For pubs, the rateable value is worked out differently, based on the annual level of trade (minus VAT) that the business is “expected to achieve if operated in a reasonably efficient way” (according to GOV.uk). This factors in the area, the type of pub, and the services it offers. The VOA works out this fair maintainable trade figure, multiplies it by a set percentage agreed with the British Beer and Pub Association, and the resulting figure is the pub’s rateable value.
Can I get business rates relief?
Certain properties are eligible for discounts on their business rates from their local council – this is called business rates relief, and it is applied after doing the calculation from the previous section.
Relief is typically available to small businesses, businesses that may be struggling financially, charitable organisations and businesses that could be significantly affected by rates increasing in the upcoming tax year. Significant relief is also available to retail, hospitality and leisure businesses.
All of the currently active forms of relief are detailed below. You should contact your local council if you think you are eligible.
Small business rates relief
If your property’s rateable value is £15,000 or less and your business only uses that one property, you can get small business rates relief.
For properties with a rateable value of £12,000 or less, you won’t pay any business rates at all. For properties with a rateable value inbetween £12,001 and £15,000, your business rates discount is scaled between 100% and 0%. For example, if your property’s rateable value is right in the middle at £13,500, you will get a 50% discount on your business rates.
Retail, hospitality and leisure relief
You may be eligible for this form or relief if your business is mainly used as a:
- Shop
- Bar, restaurant, café or pub
- Cinema or music venue
- Gym, hotel or spa
If you are eligible, you could get 50% off your business rates for the 2022/23 tax year, or 75% off for the 2023/24 tax year.
This form of relief is capped at £110,000 per tax year for each business.
You may be able to get this relief on top of other forms of relief you are receiving already – check with your local council.
Rural rate relief
If your business is located in a rural area with a population of 3,000 or less, you’ll pay no business rates if your business is either:
- the only village shop or post office, with a rateable value of up to £8,500.
- the only public house or petrol station, with a rateable value of up to £12,500.
Charitable rate relief
Charitable rate relief of 80% is available for properties used for charities and community amateur sports clubs. Under what is known as ‘discretionary relief’, you may be able to get this increased to 100%. Discretionary relief can also help you get some relief if your property doesn’t qualify for charitable rate relief but is used for a non-profit or volunteer work. Contact your council to find out if you are eligible.
Hardship relief
You can ask your local council for hardship relief if you believe you would be in financial difficulties without it, and that granting you the relief is in the interest of the local community.
Transitional relief
Transitional relief limits the amount that your business rates can change year-on-year, in case the rateable value of your property has changed significantly between valuations. This is implemented so that increases in your bill can be phased in gradually. Your local council will adjust your bill automatically if you are eligible, but you can view how this affects your rates at GOV.uk.
Local newspaper relief
You may be able to get £1,500 off your business rates each year if your property is used as an office for journalists and reporters on a local newspaper team. Magazines are not eligible.
You can only get this relief for one property per newspaper, even if more than one property is used as offices for the newspaper. Likewise, if several local newspapers use the same office, only one newspaper title can get the relief.
Supporting small business relief
Supporting small business relief can ensure that your business rates go up by no more than £600 for the 2023/24 tax year if:
- your business property’s bill is going up after the next revaluation
- you’ll lose some or all of your small business rate relief or rural rate relief as a result of the revaluation.
What other things can affect my business rates?
Your business rates could be affected if:
- You move business premises or make changes to your current premises
- The nature of your business changes
- You sublet part of the property
- You merge multiple properties together
- Your property is affected by flooding, roadworks, or other forms of local disruption.
You should report any changes to the Valuation Office Agency, to make sure you’re paying the right amount in business rates.
Do I need to pay business rates if I work from home?
You don’t usually have to pay business rates if you’re working from home provided:
- You’re only using part of your home for your business, eg. you use a spare bedroom as an office.
- You sell goods by post.
In these cases, you’ll usually pay Council Tax as normal.
You may need to pay both business rates and Council Tax if:
- Your property is “part business and part domestic”, for example, you live above your shop.
- You sell goods or services to people who visit the property.
- You employ people who work at your property.
- You’ve made changes to your home for business purposes, such as converting a room into a hairdressing salon.
Contact the Valuation Office Agency if you are unsure whether you should be paying business rates.
How do I pay business rates?
Your local council should send you a bill in February or March charging you your business rates for the upcoming tax year beginning in April. You can pay this by bank transfer or set up a direct debit. Most councils will let you choose between paying what you owe all at once or in monthly instalments.
Challenging your business rates
If you think your property should be exempt from business rates, want to challenge your property’s rateable value, or wish to report changes that you think affect your property’s rateable value, you should create a business rates valuation account at GOV.uk.
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