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What are business rates? A guide for small businesses

4-minute read

What are business rates? A guide for small businesses
Sam Bromley

Sam Bromley

24 March 2021

This article was updated on 28 October

Business rates are a tax on property used for business purposes. So, if you run your business from a commercial property (or in some cases, if you work from home), it’s important that you understand business rates and how much you need to pay.

What are business rates?

Business rates are taxes designed to help fund services in your local authority. The government charges business rates on properties like offices, shops, pubs, and warehouses – most non-domestic properties will attract business rates.

They may also be charged where only part of a building is used for non-domestic purposes.

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How much are business rates?

Business rates are calculated using a property’s ‘rateable value’. The rateable value is a property’s estimated value on the open market. The last revaluation, conducted by the Valuation Office Agency (VOA) and which came into effect on 1 April 2017, refers to values as of 1 April 2015. Revaluation usually happens every five years.

This means that revaluation is now underway for 2023. The VOA is currently contacting businesses to request rental information – look out for a letter, if you haven’t received one already.

It’s possible to estimate your business rates by multiplying your property’s rateable value by the relevant number – there’s more on this at the bottom of the article.

Using the VOA business rates checker

The government has a tool you can use to check the VOA’s rateable value for your property.

This is a useful tool, because if you think that your rateable value is wrong, your business rates could be too.

Using the tool, you can request changes to property or valuation details, see the valuation details of other properties, and apply to change the rateable value.

You’ll need to use this tool if you want to estimate your business rates.

Business rates holiday 2021-22 for eligible businesses

In 2020-21, the government introduced a business rates holiday for businesses in the retail, leisure and hospitality sectors to help them through disruption caused by Covid-19.

This lasted until the end of June 2021. Currently business rates are discounted by two thirds, up to a value of £105,000 per business, or £2 million if it was required to close under the rules introduced in January 2021 (and there's a further discount for 2022-23, discussed below).

Read more about the available coronavirus support for small businesses.

Business rates review 2021

In 2020, the government also carried out a “fundamental review of business rates”. The government asked for views on how the system currently works, whether there are any issues with the system, plus ideas for change and alternative taxes.

The results of the review were announced in the Chancellor's Autumn Budget,including

  • a 50 per cent business rates reduction for retail, hospitality, and leisure businesses in England for the financial year 2022-23, up to a maximum of £110,000
  • revaluation of business rates will happen every three years, rather than five (starting from 2023)
  • a new relief to support green property investment is available from April 2023 – this means no property will face higher rates for the first 12 months after making 'qualifying improvements'

Further reforms could be possible in future as the government is said to be considering a new online sales tax and use the revenue to reduce business rates.

What is the small business rates relief?

Reliefs are available for some properties – the most useful for small firms is the small business rate relief. You can get this relief if your property has a rateable value of less than £15,000, and generally if your business only uses one property:

  • full relief is available on properties with a rateable value of £12,000 or less
  • for those between £12,001 and £15,000, relief goes down gradually from 100 per cent to zero per cent

If you’re a small business but you don’t qualify for small business rate relief, your bill will still be worked out using the lower small business multiplier (for properties with a rateable value below £51,000).

There are other business rates reliefs available, including the rural rate relief and charitable rate relief. You can read more about these on the government website.

Business rates and working from home

You won’t generally have to pay business rates if you use a small part of your home for business purposes (for example, if you use a room as an office).

But in some circumstances you’ll have to pay business rates on top of Council Tax – if, for example:

  • your property's split into domestic and business parts, for example in the case of a flat above a shop
  • you sell things to people who visit the property
  • you employ anyone at your property
  • you’ve made changes to your home so you can run your business (like converting your garage)

If you’re not sure whether or not you should be paying business rates, you should contact the VOA.

Business rates calculator

If you want to estimate your business rates bill, you'll need to find out your property’s rateable value.

With this you can find the correct multiplier, which will depend on the rateable value. Then, deduct any reliefs you’re entitled to.

You can use the government’s business rates calculator.

This article is a guide only – but for more help with business rates, the government says you can contact qualified surveyors. They list the Royal Institution of Chartered Surveyors (RICS), the Institute of Revenues, Rating and Valuation (IRRV) and the Rating Surveyors Association.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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