Understanding Business Rates

Quote  What are business rates? How are they calculated? How do they work? The NHF answers all of your questions. 

What are business rates? 

Business rates are a tax based on the value of a property used for commercial purposes.  The money raised goes to local authorities to fund local services. According to the government, in England in 2012 business rates raised around £22bn. 

Business rates are handled slightly differently in Scotland and Northern Ireland to how they are in England and Wales.

Details can be found at:

http://www.nibusinessinfo.co.uk/content/help-available-business-rates (Northern Ireland) 

http://www.business.scotland.gov.uk/view/guide/business-rates-the-basics (Scotland). 

How do they work?

Business rates are charged on all non-domestic properties, in other words any shops, offices or factories that do not qualify for an exemption. According to the government, in England alone this means some 1.8 million properties. 

Rates are normally payable by occupiers of premises, rather than owners. In other words, if the building is leased or rented, it is the tenant who pays the rates. However, if a property is empty the owner may be liable for business rates. You may also have to pay rates if you only use part of a building. 

The billing and collection of rates is the responsibility of the local authorities.   Your local council will normally send you a business rates bill in February or March each year. This will be a bill for the following tax year. But it doesn’t all have to be paid as single lump sum as businesses can pay their business rates bill in 12 monthly instalments. 

How are rates calculated?

Take a deep breath, because this is complicated. A business rates bill is worked out by taking the rateable value of your property (which is set by the Valuation Office Agency) and then multiplying it by what is known as a “business rates multiplier”. 

The rateable value of a property is the annual rent the property could have been let for on the open market on a particular date, on full repairing and insuring terms. 

The business rates multiplier is a tool set by central government but used by the local council. The multiplier in England is set by the Department for Communities at Local Government each time business rates are revalued (see below), although it also changes with inflation. For Wales it is set by the Welsh Government and the City of London has the power to set its own multiplier. 

England – 2014/15

Standard business rate multiplier value       

  48.2p for every £1 rateable
Small business rate multiplier value   47.1p for every £1 rateable

On your business rates bill the rateable value is sometimes shown as RV.  The multiplier is sometimes called ‘poundage’ or ‘rate poundage’ and the numbers are shown as 0.471 rather than 47.1p. 

What is a revaluation of rates?

Revaluation of rates usually takes place every five years to reflect changes in the property market.

The most recent revaluation in England and Wales was carried out in April 2010 and the next one for England, Wales and Scotland is due in 2017. In Northern Ireland a revaluation is set to be carried out in 2015. 

There is normally a two-year period between a valuation date and the date the revaluation comes into effect. 

Relief schemes can reduce your business rates bill particularly if your business is small, you may be eligible for business rates relief. This is sometimes added automatically to your bill, but sometimes you may need to apply for it through your local council. 

The most relevant rate relief schemes for salons are small business relief and retail rates relief. 

There are 5 other rate relief schemes:

  • rural rate relief
  • business rates deferral scheme
  • charitable rate relief
  • enterprise zone relief
  • transitional relief

For details of these go to:

https://www.gov.uk/apply-for-business-rate-relief/overview 

Small business rate relief 

You can get small business rate relief if you only use one property and its rateable value is less than £12,000. 

Until 31 March 2015 if the rateable value of your property is £6,000 or less you’ll get 100% relief on your bill.  In other words, any business with a rateable value of £6,000 or less will not have to pay business rates at all. 

From £6,000 up to £12,000 you will get relief but it will be less than 100% - see the table below for how it’s calculated:  

Rateable value Relief

£1 to £6,000

£6,001 to £12,000      

100%

1% reduction for each £60 below 12,000

If you have more than one property, you may still be able to get small business rate relief if the rateable value of each of your other properties is less than £2,600. In this case, the rateable values of the properties will be added together and the relief applied to the main property.  Once again, it will be your local council who calculates this relief, so contact them if you feel you might be eligible. 

However, even if your business is too big to apply for small business rate relief, the good news is that if your business has rateable value of below £18,000 (or £25,000 in Greater London), it will be classed by the local authority as a small business. 

£12,001 to £18,000 (£25,000 in Greater London)       No relief, but the small business rates multiplier will be used
£18,000+  No relief applies

As the small business rates multiplier will be used for calculating your rates bill rather than the standard business rates multiplier, even if you have multiple properties, this will reduce your business rates bill. 

Retail rates relief

This is the newest rates relief scheme, announced in December 2013.  It provides a business rates discount of up to £1,000 to all occupied retail properties with a rateable value of £50,000 or less in each of the years 2014 to 2015 and 2015 to 2016.  The government guidance makes it clear that ‘retail businesses’ include ‘hair and beauty services’ so it does apply to salons. 

Once again, if you feel you’re eligible, contact your local authority to find out more. 

For more information on business rates a good starting point is the government:

https://www.gov.uk/introduction-to-business-rates/overview

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