What are Business Rates? Who pays, how they’re calculated

Published • 01/07/2024 | Updated • 01/07/2024

Taxes

What are Business Rates? Who pays, how they’re calculated

Published • 01/07/2024 | Updated • 01/07/2024

Taxes

The taxes you pay as a small business owner are determined by both the legal structure of your enterprise and the physical form it takes. 

For example, if you’re setting up a limited company, you’ll need to get to grips with Corporation Tax, which wouldn’t be the case if you adopted the sole trader structure. Similarly, if you’re operating your business from commercial premises rather than, say, your kitchen table, you’ll be liable for Business Rates.

But just what are Business Rates? Who pays them, and how are Business Rates calculated for your enterprise? We’ll cover these questions in this guide, and also talk through how to reduce your Business Rates, potential exemptions, and the process for appealing your rates.

Business Rates can be pricey, so understanding how much you might owe is essential when considering how to write a business plan or creating a cash flow forecast.

What are Business Rates?

Business Rates are a tax charged on most properties that aren’t used for domestic purposes. These include:

  • Offices

  • Retail premises

  • Pubs

  • Factories

  • Warehouses

  • Guest houses or holiday rental homes

Your local council collects the tax before it’s used to help fund local services like education, emergency services, and infrastructure.

It should be noted that Business Rates are managed differently if your property is located in Scotland or Northern Ireland.

Who sets Business Rates?

In England and Wales, Business Rates are determined by the Valuation Office Agency (VOA), which is a part of HMRC.

Properties are revalued regularly, every five years from 1990 to 2010, and then in 2017 and 2023. The most recent revaluation took effect on 1 April 2023.

How are Business Rates calculated?

The VOA works out the rateable value (RV) of your property, which is what it would cost to rent for a year on 1 April 2021.

To calculate Business Rates, your business’s rateable value is multiplied by a ‘multiplier’, which is a figure set by the government

In England, there are two types of multipliers: the standard one and a lower one for small businesses with a rateable value below £51,000. In the 2024 to 2025 period, the multipliers are:

  • Standard multiplier – 54.6p

  • Small business multiplier – 49.9p

These figures apply to all of England except for the City of London, where the multipliers are:

  • Standard multiplier – 56.4p

  • Small business multiplier – 51.5p

In Wales, the multiplier is 56.2p.

Please see the official government sites for calculating Business Rates in Scotland and Northern Ireland.

Estimate your Business Rates bill

You can use these multipliers to estimate how much your Business Rates will be. Here’s how to do it:

  1. Look up your property’s rateable value.

  2. Multiply your property’s rateable value by the correct multiplier. 

  3. Deduct any Business Rates relief that your business is entitled to.

For example, let’s say your property has a rateable value of £10,000. Since this value is below £51,000, you would use the small business multiplier. So, you multiply £10,000 by 0.499, resulting in £4,990.

Next, deduct any business rate reliefs your business qualifies for from this amount to get your final bill. We’ll give you a rundown of the different reliefs shortly.

Who pays Business Rates?

Whether you’re a tenant or an owner, if you use a building or part of it for your business, you’re generally responsible for paying Business Rates.

Home-based businesses

Even if you work on business ideas from home, you may have to pay Business Rates if you use a significant part of your property for business. For instance, if your property is both business and domestic, like living above your shop, you’ll likely need to pay Business Rates (as well as Council Tax).

Other scenarios where you may need to pay Business Rates include selling goods and services to customers who visit your home, employing people to work at your property, or making substantial changes to your home for your business, such as converting your basement into a yoga studio.

On the other hand, you don’t usually have to pay Business Rates for home-based ventures if you only use a small part of your home, like working on side hustle ideas from your bedroom, or if you specialise in things to make and sell by post.

Get a business account

Even if you’re a small, home-based business, it’s important to keep business and personal finances separate so you’re always clear on how much money is entering and leaving your enterprise. With a free SumUp business account, keeping tabs on your incomings and outgoings is a cinch, and you also get a Mastercard for daily spending.

Open your account

Online businesses

The “bricks vs clicks” debate has long since been a bone of contention for some owners of brick-and-mortar businesses who feel that online businesses have an advantage when it comes to taxes. 

However, in the 2022 Autumn Statement, the UK government decided not to introduce a new tax on online sales (OST). This decision came after a consultation to weigh the pros and cons of such a tax.

If you have an office or warehouse for stock you’re selling online, you’ll still need to pay Business Rates on that property. However, if you’re thinking about how to start an online business from home, you don’t need to worry about Business Rates unless you make significant changes, like the ones mentioned earlier.

An easy way to sell online

With a free SumUp online store, you can sell to a global audience with very little effort on your part. The built-in editor means you can set out your virtual stall with no design experience required, while order notifications, out-of-stock alerts and inventory management tools ensure you can manage your store with ease.

Find out more about the online store

When do you have to pay Business Rates?

Your local council will issue a Business Rates bill in February or March for the upcoming tax year.

Typically, Business Rates are paid in 10 monthly instalments. However, if you’re planning how to improve cash flow in your business, you can usually contact your local council and request to pay in 12 instalments. On the other hand, if cash flow is no problem, you may choose to pay the entire bill at once.

Local councils typically accept payments in multiple ways, including online payment methods and taking card payments over the phone, so you can choose to do it in a way that best suits your business.

How to reduce Business Rates

Some businesses qualify for discounts on Business Rates. The precise details of different types of Business Rates relief available do vary if your property is in Scotland, Wales, or Northern Ireland, but here’s what you could claim for a business in England.

Small business rate relief

You can get small business rate relief if:

  • The rateable value of your business’s property is less than £15,000.

  • Your business only has one property (you may still qualify if you use more).

What you can claim

The amount of relief you receive depends on your property’s rateable value:

  • If your property’s rateable value is £12,000 or less and it’s the only property your business uses, you won’t pay any Business Rates.

  • For properties with a rateable value between £12,001 and £15,000, the relief decreases gradually from 100% to 0%.

So, let’s say you’re in the food and drink industry, perhaps running a small café. If the rateable value of your café is £13,500, you’ll get 50% off your business rates bill. If the value is £14,000, you’ll receive a 33% discount.

This can make a significant difference in your operating costs, helping you reinvest in your business, like buying fresh ingredients or upgrading your card machines.

If you use more than one property

Thinking about how to scale a business is always exciting, but there can be substantial costs related to everything from how to advertise your business growth, to providing perks and discounts to maintain customer loyalty. So it’s good to know that if you do acquire a second property, you’ll continue to receive relief on your main property for 12 months. 

This gives you some financial breathing room as you scale up. After the initial 12 months, you can still get small business relief on your main property if:

  • Each of your additional properties has a rateable value below £2,899.

  • The combined rateable value of all your properties is under £20,000 (or £28,000 in London).

For example, if you decide to open a small bakery to complement your café, as long as the bakery’s rateable value is below £2,899 and the combined rateable value of both properties is under £20,000, you’ll still benefit from the relief on your original café.

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Supporting small business relief

The supporting small business relief scheme runs until the end of the 2025 to 2026 tax year. You can get it if your Business Rates bill increased after the 2023 revaluation, and you lost some or all of your regular small Business Rates relief (or rural relief). If you’re eligible, your bill will increase by no more than £600 per year. Retail, hospitality, and leisure property

You might be eligible for retail, hospitality, and leisure relief if your business primarily operates as a:

  • Retail store

  • Café, pub, bar, or restaurant

  • Music venue or cinema

  • Hospitality or leisure business, such as a gym or a B&B

What you can claim

If you qualify, you could receive a 75% discount on your Business Rates bills for the 2024 to 2025 billing year (from 1 April 2024 to 31 March 2025). The maximum relief available per business each year is capped at £110,000.

Say you own a boutique hotel with a rateable value of £50,000. If eligible, you would get a 75% discount on your Business Rates bill for the 2024 to 2025 billing year, meaning you only pay 25% of the original bill.

Rural rate relief

Your business could qualify for rural rate relief if it’s located in an eligible rural area with a population under 3,000, and is:

  • The only post office, food shop, or general store in the village, with a rateable value under £8,500.

  • The only petrol station or pub in the village, with a rateable value under £12,500.

If the area has more than one business – for example, a general store and a pub – both can apply for rural rate relief. Your property must be occupied.

What you can claim

There’s great news here if you’re wondering how to avoid Business Rates. If your business ticks the right boxes for rural rate relief, you won’t pay any Business Rates at all.

Other types of relief

There are several other reliefs that can reduce your Business Rates bill:

Charitable rate relief 

If you mainly use your property for charitable purposes, you could get up to 80% off your bill. Plus, your local council might offer extra discretionary relief, bringing the discount up to 100%. Keep in mind that you can’t get this relief and small business rate relief at the same time.

Local newspaper relief 

If your property is an office for local newspaper journalists and reporters, you might qualify for a £1,500 reduction per year. It’s limited to one property per newspaper, even if multiple properties are used. If multiple newspapers share an office, only one can get the relief.

Empty property relief  

If your property is empty, you don’t pay rates for three months from the vacancy date. Industrial premises like warehouses get an extra three months, listed buildings and properties with a rateable value under £2,900 are exempt until reoccupied, and charities or sports club properties are exempt if their next use is mainly charitable or for sports.

Improvement relief 

You might qualify for a year of relief if you make eligible improvements to your property. Improvements must increase your property’s rateable value, be complete on or after 1 April 2024, and either expand the property or add new features like heating or CCTV. You must occupy the property during and after the improvements.

Hardship relief

Your local council can reduce or cancel your Business Rates bill with hardship relief if your small business finances are tight, and they think it’s in the best interests of local residents. To qualify, you may need to show proof of your financial situation and how your business benefits the community.

Transitional relief 

You’ll get this relief if your rates change significantly, allowing gradual adjustments. Your council will apply this if you’re eligible. The change in your bill depends on your property’s rateable value and whether the revaluation increases or decreases it. Transitional relief ends when your bill reaches the full revalued amount.

Enterprise zone relief 

If you’re thinking about how to start a business in an enterprise zone, or relocating to one, you might qualify for relief. Eligibility and the amount depend on local council rules, the zone’s establishment date, and when your business started or moved there. The relief could be up to £55,000 per year for five years.

Freeport relief 

Businesses in eligible freeports, such as Liverpool and Thames, may qualify for relief if you started, moved, or expanded there post-setup. New or relocated businesses get full relief, while existing ones with property improvements receive discounts. Relief is calculated by the local council and lasts for five years.

Heat networks relief  

This relief applies if your property primarily functions as a “heat network”, providing heat or cooling from a central source to buildings like homes, shops, and offices using low carbon energy. It must not serve industrial purposes. If eligible, you won’t pay Business Rates on the property.

It’s worth noting that some property types are fully exempt from Business Rates. These include agricultural buildings, structures which are utilised for the training or support of disabled individuals, and buildings designated for religious worship.

How to appeal Business Rates

In England and Wales, the VOA manages “check and challenge” cases, meaning you can inform them if your property details need updating or you believe your rateable value is too high. Here’s a quick guide to the process:

  1. Open a business rates valuation account – You can use your business’s existing Government Gateway ID to sign up for this. If you don’t have one, you can create it during registration. Once your account is up and running, you can appoint an agent if you wish.

  2. Add a property – You can then update its details and challenge the rateable value. You’ll need to provide evidence proving your connection to the property.

  3. Change your property details – Submit a “check case” to confirm or update your property details with the VOA. Include evidence to support any changes. If the VOA accepts your changes, they’ll adjust the rateable value accordingly.

  4. Challenge your property’s rateable value – If you think your rateable value is too high, send a “challenge case” to the VOA. You’ll need to explain what you believe the correct value to be and provide supporting evidence. A check case must be completed first.

  5. Appeal – If you disagree with the VOA’s decision on the rateable value, you can request a review from the independent valuation tribunal.

This process works slightly differently for properties in Scotland and Northern Ireland.

Disclaimer: The contents of this page are intended for informational purposes only and should not be construed as professional advice. For matters requiring legal or financial expertise, it’s recommended to seek guidance from qualified professionals.

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