What are Business Rates? Calculator and Small Business Rate Relief explained

What are business rates?

Similar to council tax, business rates are charged by local authorities to finance public services. Any firm that occupies non-domestic or commercial properties must pay business rates. The property occupier, either the owner or the leaseholder, pays the business rates.

If you only use part of a building for non-domestic purposes, for example, a shop with a residential flat above it, the part used for business will still require payment of business rates.

Similarly, if you work from home, you may have to pay business rates on the section of your house that is used for work purposes.

New business rates were introduced on 1 April 2023 for the first time in three years. Business owners now need to budget accordingly for the new valuation, as the impending recession has put extra pressure on cash flow.

Government aid will be given via an updated and expanded Small Business Rates Relief (SBRR) scheme. However, March’s Spring Budget gave little else in the way of business rate support.

If you’re a small business owner, you might be eligible for business rates relief through the SBRR. This relief cuts the amount of business rates you have to pay, lowering your overheads and freeing up cash for investing in growth. We’ll explain more about how to qualify for the scheme in the article below.

How to calculate business rates

To calculate your business rates you need to multiply the rateable value for your business with the ‘multiplier’ (also known as ‘poundage’) set by the government.

Rateable value is the value given on a premises by the Valuation Office Agency, which is based on its probable annual market rent.

These values are reviewed every five years and take the size of the property and its usage into consideration, in addition different parts of the premises may be valued at different levels. The latest rateable value figures are estimates of the property’s open market rental value as of 1 April 2015.

Multipliers are the number of pence per pound of rateable value that you’ll have to pay in business rates, before any relief or discounts are deducted.

These are reviewed every year by the government in line with inflation. As part of a government support package for SMEs, the business rates multipliers have been frozen at 49.9p and 51.2p in 2023-24.

Current business rates multiplier values

It’s worth knowing how to calculate your business rates yourself to ensure you’re paying the right amount, and to plan your financial year ahead.

Step 1. Search for a property’s rateable value by postcode
Step 2. Find the correct ‘multiplier’ for the size of your business and location
Step 3. Times your rateable value by the correct ‘multiplier’

Example:

Jaya has a business in Wales. Let’s say the rateable value of her business is £8,000. She should use the 2022 to 2023 small business multiplier (49.9 pence) to estimate her business rates as follows:

£8,000 (rateable value) x £0.499 pence (multiplier) = £3,992 (basic business rates).

As her rateable value is lower than £15,000, Jaya may also be able to reduce her bill by applying for Small Business Rates Relief (SBRR). More on what that means below.

Small Business Rates Relief (SBRR)

The cost of living crisis has put huge cost pressures on startups and small businesses. Inflation is currently at 11.1%, and the rising costs of rent and energy bills – combined with less consumer spending power – have made it more difficult for businesses to afford business overheads such as property costs.

Small Business Rate Relief (SBRR) is a national discount scheme administered by local councils on behalf of the UK Government. It is awarded on a sliding scale depending on the size of your Rateable Value (RV).

In England, you can get SBRR if you only occupy one property with a rateable value of less than £15,000. Rates relief is handled differently if your property is in Scotland, your property is in Wales or your property is in Northern Ireland.

If your property has a rateable value of £12,000 or less you will get 100% relief from business rates. This rate will gradually decrease from 100% to 0% for properties with a rateable value between £12,001 to £15,000.

For example:

• A property with a rateable value of £13,500 will net you 50% off your bill
• One with a rateable value of £14,000 will give you 33% off

If you have a second property you can keep relief on your main property for one year. After 12 months, you can still qualify for SBRR as long as:

• None of your other properties have a rateable value of above £2,899
• AND the combined rateable value of all your properties is less than £20,000 (£28,000 in London).

The rateable values of the properties are then added together and the relief applied to the main property. You can find out if you qualify for small business rates relief by contacting your local council.

My small business doesn’t qualify for SBRR. What can I do?

In England, even if you do not qualify for SBRR, you can still receive a discount on business rates as long as your property has a rateable value below £51,000.

In this scenario, your bill will be calculated using the small business multiplier, which is lower than the standard one (49.9p versus 51.2p.)

Retail, Hospitality, and Leisure (RHL) Rates Relief Scheme

Under previously announced legislation, hospitality, leisure and retail companies received a 50% discount on business rates bills for the 2022-23 tax year. For the 2023-24 tax year, the relief for hospitality, leisure and retail companies has been extended and increased.

Since April 1 2023, as part of the government’s inflation support pledge, all eligible firms now receive 75% off their business rates bills, up to £110,000 per business. Following the Autumn Statement announced on 22 November 2023, the scheme will be extended for a fifth year into 2024-25.

According to a government press release, this means a typical small shop with a rateable value increasing from £20,000 in 2017 to £21,500 in 2023 will receive RHL relief worth around £8,000 (subject to the £110k cash cap per business).

Nurseries are also entitled to the same discount. To be eligible, your business must be on Ofsted’s Early Years Register, provide care and education for children up to five years old (the early years foundation stage), and not be a local authority-run nursery.

If these new business rates relief measures apply to your business, you do not need to take any action. Your local council will apply your discount automatically, which may involve re-issuing your bill.

Enterprise Zone relief

Charitable rate relief

Rural relief

What businesses are exempt from business rates?

• Farm buildings and land (excluding building used as offices or for business activities)
• Buildings used for training or welfare of disabled people
• Fish farms
• Places of public religious worship

Businesses that own empty property are exempt from empty property rates for the first three months that they are empty, while industrial or warehouse properties are exempt for the first six months. After these periods businesses that own empty property are liable to pay business rates in the normal way.

How to pay business rates

The council will normally send you a rates bill in March or April, and most councils will ask you to pay in equal monthly installments. Before this, you can also estimate your business rates bill using the government’s online calculator.

Small Business Rates Relief is usually automatically applied. You can contact your local authority if you think your bill is incorrect. Likewise, if you are having cash flow problems and are finding it difficult to pay the bill, contact the local council because they may be able to help.

Changing address can sometimes also impact your business rates bill. Be sure to tell your local council if you start up a new business or if you move premises, so they can charge you the right amount.