What Are Business Rates? A Guide For Small Businesses In The UK

Business rates are one of the oldest UK taxes, which apply to all business premises in the UK. Even if you’re working from home, you could be liable for paying business rates on the part of your home which you use for your business – so they are an important aspect to get right. 

Make sure that you don’t get caught out with our full guide on what are business rates in the UK. 

What are business rates? 

Business rates are a tax for business premises that are taken by the local council to pay for services such as police, fire and waste management. They work in the same manner as council tax, calculated based on the value of the property being taxed. 

And in the same way as council taxes, business rates are billed as an annual amount that can be broken down into 10-month or 12-month instalments to help you split the cost. 

Do I have to pay business rates?

This depends on your business and properties. 

If you have a property that’s used for business purposes (i.e. an office, a pub, a warehouse, a factory, a studio, etc), then you will be liable to pay business rates. There are some exceptions to this rule though, as some businesses will be able to apply for exemptions, and specific working from home businesses will be able to avoid the tax. We’ll cover both of these in more detail below. 

What about business rates when working from home?

When working from home, you will have to pay business rates if part of your home is exclusively used for business. This means that if you run an online business where you sell goods from home, or if you work from your bedroom or kitchen and don’t entertain any clients, then you won’t have to pay business rates. Instead, you’ll pay council tax as normal.

However, if there’s a room that’s exclusively used for business – or if you entertain clients at home, i.e. if you’re a beautician or dog groomer, then you will be liable for business rates. This also applies if you have staff coming to your home to work. 

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How much are business rates in UK?

Business rates are calculated by the Valuation Office Agency (VOA), which uses the ‘rateable value’ of your property value to calculate your rates. This figure is an estimate of how much it would cost to rent a property for a year. 

Once they have this value, the VOA multiplies this figure by the chosen multiplier. There are two options here:

  • The standard multiplier, which is used if the rateable value is over £51,000. 
  • The small business multiplier, which is used if the rateable value is under £51,000. 

The multiplier rates are set each year and have remained steady for the last 4 years: 

YearStandard multiplierSmall business multiplier
2023 to 202451.2 pence49.9 pence

If your property is in Wales or London, different multipliers are used. 

As an example, let’s say that Darren has built an extension to house a pottery studio for his business. The VOA estimates the rateable value of this property at £15,000. 

Because this value is less than £51,000, Darren would use the small business multiplier. So:

  • 13,000 multiplied by 0.499 = 6487
  • Darren’s business rates would be £6,487 per year.

However, there are some exemptions or relief schemes that small businesses can apply for to help reduce this rate. 

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Who can get business rate relief? 

Business rates are a massive overhead for businesses, particularly small businesses. Luckily, there are a lot of schemes and reliefs available to help make this tax bill smaller and easier to manage. 

Some of the main reliefs and exemptions are:

Small business rare exemptions 

The small business rate exemption is available for businesses that only use one property with a rateable value of less than £15,000. Those that have a rateable value of less than £12,000, won’t have to pay any business rates, while those with rateable values between  £12,001 to £15,000 pay a much lower rate.

Using the example of Darren’s pottery studio from earlier, this exemption would mean he paid a much lower rate, so he didn’t have to pay the full £6,487 a year. If his studio had a rateable value of £10,000, he wouldn’t have to pay anything. 

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Charitable rate relief

If you are a local charity or community amateur sports clubs, you could get an 80% reduction in business rates. 

Transitional relief

This relief rate is available for properties that get revalued, meaning that any increase in business rates is phased in slowly so you don’t have to pay the full increase at once. 

Enterprise zones

Enterprise zones are areas that the government are actively trying to encourage businesses to move into – which means that they might provide better relief on business rates to make the area more attractive. 

Retail discount

Some shops, cafes, pubs, bars or restaurants are eligible for retail discounts on business rates if you’re using the small business multiplier rate. Qualifying for this relief depends on the local council that you are in. 

Are business rates the same as Council Tax?

Be aware that even if you work from home you may be liable for paying both business rates and council tax.

Both business rates and council tax are calculated in the same manner, with the annual value you pay depending on the value of your property. The main difference between the two taxes is what properties you pay for. 

  • Council tax is exclusively for domestic properties, i.e. your home. 
  • Business rates are for properties that are used for your business. 

If you work from home, you may be liable for paying both business rates and council tax, depending on your business and how much of your home space is dedicated to your business. 

Do you pay business rates instead of council tax?

If a property is solely used for business, you will pay business rates instead of council tax. However, if you work from home, you will still need to pay council tax on your property – and pay business tax on the proportion that you use for your business. I.e. if you have converted your garage into a photography studio, you will be eligible for business rates on this section of your home. 

If you don’t have a dedicated space, i.e. you work from your kitchen and don’t see any clients inside your home, you will only have to pay council tax. 

If you have a home you let out for your business for more than 20 weeks a year, this will be classed as a self-catering holiday let and must pay business rates rather than council tax.

When and how do you pay for business rates? 

Like council tax, you will be sent an annual bill for your business rates in February or March every year. Then, you can pay the full amount in one go or through smaller 10-month instalments.

Can I appeal my business rates bill?

Yes!

If you think that your business rates are incorrect or are using an unfair rateable value, then you can appeal to Valuation Tribunal Service for a reevaluation. 

It may also be worth speaking to an accountant or financial advisor for them too, to see if there are any relief schemes that you could apply for to reduce your business rates. 

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What are business rates? A summary 

Business rates are a tax for business properties, that fund local services such as the police, ambulance and fire services. They are calculated based on the rateable value of your property, which is an estimate of how much that property would be to rent for one year. 

If you work from home and don’t have a dedicated space for your business – then you might be exempt from paying business rates. Similarly, most small businesses can apply for reliefs that will either give them exemptions or reduce this bill dramatically. 

For more advice on business rates, we’d always recommend speaking to an accountant or financial advisor to ensure that you pay the best rates available for your business. 

Need more accounting advice or information on what tax you will be liable for

We’ve got you covered at Business4Beginners

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Business4Beginners has been advising new businesses owners since 2013. The founder, Paul Bryant, has created, grown and sold several successful businesses and remains the editor and fact-checker of all content published on the site.
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