Small business rates relief: what you need to know in 2018

Finance and legal

29 August 2018

With business rates rising 3% in April earlier this year, the health of Britain’s high streets continues to experience a downturn as retail shops struggle.

This year alone, shoppers have witnessed the demise of high street heroes including Toys ‘R’ Us, Maplin and Poundworld, while department store stalwarts Debenhams have announced a slump in profits while House of Fraser called in the administrators before being bought over by Sports Direct’s Mike Ashley.

Research by the Altus Group found that on average, the bills forked out for business rates by department stores in England and Wales is up 26.6% on last year and 10.8% for large retail shops. In contrast, the dominators of the digital economy, including Amazon and ASOS, enjoy lighter taxes on their distribution centres and warehouses than their bricks and mortar counterparts.

However, it’s not only Britain’s leading retailers that’s impacted by increasing business rates, it’s big news for small businesses too. From rates payable to multipliers, here, we explain the ins and outs of business rates and how small business rate relief could help keep your business rate bills to a minimum.

What are business rates?

Business rates are a tax applied to a property used for business purposes, whether it’s an office, a shop, restaurant or pub. The business rates are charged to the property occupier or leaseholder and the fees are used by local authorities to finance local services.

When are business rates charged?

If you use part of a building for business purposes, such as a shop with a residential flat above it, you only pay rates on the section used for business. Similarly, if you run a home-based business, you’ll have to pay business rates on the room or sections of your house that has been adapted for work purposes.

Fundamentally, business rates are determined purely on your business’ property, not the turnover or profits of your business.

What is rateable value?

Rateable value is the value granted to non-domestic premises by the Valuation Office Agency (VOA) based on their annual market rent, which is used by local councils to calculate a property’s business rates. The VOA will include certain business assets in their valuation. For example, CCTV security systems, fire protection and other types of plant and machinery may add value to a property.

These values tend to be reviewed every five years, with the usage and size of the property taken into consideration – although the government has said that the revaluations will be revised more regularly in the future, with the next one scheduled for 2021.

What is a multiplier?

Reviewed on 1 April each year in relation to the level of inflation, a multiplier is the number of pence per pound of rateable value you need to pay in business rates before discounts or reliefs are subtracted. To calculate your business rates, you need to multiply the rateable value for your business with the multiplier set by the government.

Between 1 April 2018 and 31 March 2019, the Government has set two multipliers: the small business non-domestic rate multiplier at 48p, and the national non-domestic rate multiplier at 49.3p. The City of London and Wales each have different multipliers.

How to estimate your business rates

To help plan for your financial year ahead, it pays to learn how to estimate your business rates so that you know you’re paying out the right amount. Find out how to calculate your own estimated business rates here. Keep in mind that Scotland and Northern Ireland both have alternative ways to calculate business rates, so read up accordingly. 

When am I eligible for a small business rate relief?

If your business has a rateable value less than £15,000 and only uses one property, you may be able to cut the costs of your bill by applying for small business rate relief via your local council. This relief reduces the amount of business rates you have to pay and in some cases can lead to your business being exempt from paying costs entirely.

Here’s how the UK Government explains it:

  • Your property has a rateable value of £12,000 or less – You will not pay business rates on your property.
  • Your property has a rateable value between £12,001 and £15,000 – The rate of relief will go down gradually from a scale of 100% to 0%. For example, if your rateable value is £13,500, you’ll get 50% off your bill. If it’s £14,000, you’ll get 33% off and so on.

There are a few exceptions to how small business rate relief can be applied to your business.

  • If you use more than one property – After securing your second property, you can keep claiming existing relief on your main property for 12 months. After this period you need to ensure that the rateable value of your additional properties doesn’t exceed £2899 and that the total rateable value of all your properties is less than £20,000 (£28,000 in London).

What if I don’t qualify?

If you’re a small business owner and you don’t qualify with the criteria listed above, don’t worry – there is another option available to you if your business is based in England. If your property has a rateable value under £51,000, your business rates bill will be calculated via the small business multiplier (48p) rather than the standard multiplier (49.3p).

Small business rate reliefs could help your company save big, letting you invest more of your money and time into making your business venture the best it can be. Estimating your business rates can be crucial to forecasting your business’ financial future and strategy, so familiarising yourself with the ins and outs of this legislation could help your business reap the benefits.

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