In a similar way that residents pay council tax, businesses that occupy non-domestic premises pay non-domestic rates, or business rates, to local authorities, which help finance local services.
If part of a building is used for business purposes, while another part is for domestic use, the part used for business is classified as non-domestic and so will require paying business rates. An example of this is a shop with a residential flat above it. 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. You’re more likely to have to pay business rates if a room is exclusively used for business, or if it has been adapted for work purposes.
Premises are given a rateable value by the valuation office agency, which is based on its probable annual market rent. These rateable values are reviewed every five years, and take into consideration factors such as the size of the property and its usage. It's worth noting that different parts of the premises may be valued at different levels.
Business rates are calculated using the rateable value of the property and the multiplier, which is set by the government each year. In England, the standard multiplier for 2012-13 is 45.8 pence. So, for example, a property with a rateable value of £10,000 is usually charged £4,580.
Small business rates relief
There are some business rates reliefs for small firms. In England, small businesses are entitled to relief if they only occupy one property with a rateable value of less than £18,000. This amount is £25,000 for businesses based in London. In this circumstance, the amount of relief depends on the rateable vale of the property. The standard multiplier for small businesses 2012-13 is 45 pence, or 45.4 pence for London porperties.
Businesses that own empty property are liable to pay business rates in the normal way, however, there are exemptions for empty properties. All premises 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.
Charities and small community sports clubs are entitled to get their business rates bills reduced by 80%. Other non-profit organisations can apply for up to 100% discretionary relief. Meanwhile, certain rural businesses may be able to claim rural rate relief. For example: a village shop with a rateable value below £8,500, a pub or petrol station with a rateable value of up to £12,500, or any other businesses with a rateable value of up to £16,000. To qualify for rural rate relief, businesses must feature in the local rural settlement list for a defined settlement of fewer than 3,000 people.
If you’re finding it difficult to pay, you may be able to get hardship relief, although this is usually available only to businesses that are significant to the local community.
Usually the occupier of the property pays the business rates, so either the owner or the leaseholder. Make sure you tell your local council if you start up a new business or if you move premises, so they can charge you the right amount. The council will normally send you a rates bill in March or April, and most councils will ask you to pay in equal monthly instalments. You can contact your local authority if you think your bill is incorrect. Likewise, if you are having cashflow problems and are finding it difficult to pay the bill, contact the local council because they may be able to change the amounts and dates of your payments to make things easier for your business.