With many companies feeling financial pressure due to the cost of living crisis, business owners will be searching for any possible schemes to assist them in reducing expenditure.
Business rates relief is a government scheme that covers a variety of financial support for business owners, including Small Business Rate Relief, Retail Discount, Empty Property Relief and Transitional Relief.
Following an 18% rise in business rates (on average) in 2022 compared to the previous year, we have compiled a guide to help business owners understand how business rates are calculated, the common relief schemes available and how to apply.
What are business rates?
Business rates, sometimes called commercial rates, are specific taxes applied to non-domestic properties. Property owners are charged as an annual bill and paid in ten instalments (like council tax). The money collected contributes to local services such as the police force and fire brigade.
Taxable properties include; shops, bars, restaurants, warehouses, factories and holiday rental homes, among others. If you use your house as part of your business, you may also need to pay tax on part of your home.
Exempt buildings from business rates, include agricultural land, buildings used for the welfare of disabled people or religious worship buildings.
How are business rates calculated?
The Valuation Office Agency (VOA) determines business rates depending on the ‘rateable value’ of the property, i.e. the potential rental value. The VOA also evaluates factors such as the size of your property and how it’s used. Then, your local council will send you the bill in February or March each year.
You can estimate your business rates here to assist with budgeting towards the amount before the next tax year. However, this won’t give you an exact, confirmed figure. Please note there are different ways to estimate your business rates for properties in Scotland or Northern Ireland.
What is business rate relief?
Simply put, business rate relief refers to schemes reducing the tax businesses pay on their commercial properties. This support aims to alleviate the financial burden and protect the longevity of small businesses, rural establishments and charities.
Local councils decide which businesses are eligible for each type of relief. It is important to note that business rate relief rules differ if your property is in Scotland, Wales or Northern Ireland.
How can I claim business rate relief?
Contact your local council if you believe you are eligible for relief, and they will let you know which types of support are available for your circumstances – you can often apply online. Depending on your circumstances, receiving a combination of different business relief schemes may be possible.
Councils may also offer relief for those businesses that they believe have a positive benefit to the local community at their discretion.
Some examples of businesses eligible for relief are:
- A retail, hospitality and leisure property
- A small business
- The only business in a rural area
- A charity or community sports organisation
- Experiencing financial difficulties
- Empty, partially empty or currently being refurbished
What are the different types of business rate relief available?
Some widely utilised types of business relief schemes in the UK are:
- Small Business Rate Relief (SBRR): This relief scheme is aimed at small businesses with a low ‘rateable value’ (open market rental value). Eligible businesses can receive a significant reduction or exemption from business rates.
- Retail, hospitality and leisure relief: This relief is specifically targeted at the three named sectors and could offer 75% off the next tax bill (up to a discount of £110,000).
- Charitable Rate Relief: Charities and various non-profit organisations are eligible for rate relief, often receiving an 80% reduction in business rates. You cannot get small business rate relief and charitable rate relief at the same time.
- Rural Rates Relief: This relief is available to some businesses in rural areas with a population below 3,000.
- Enterprise Zones: Businesses operating within designated Enterprise Zones set by the local council could benefit from reduced rates or exemptions for a specified period.
- Transitional Relief: Transitional relief limits significant increases in business rates following a revaluation. Your council will adjust your bill automatically if you’re eligible, allowing you to adapt to the increased rates gradually.
- Empty Property Relief: Businesses with empty commercial properties may be eligible for a 3-month relief period from their business rates.
You can view the complete list of UK business rate relief schemes here.
Can I reduce my business rates?
If you believe you have been charged the wrong business rate, you can contact the Valuation Office Agency to see if a rate reduction is possible. They may ask you to provide additional information, such as the rental information about your property.
You can also request amendments to your business rate relief through the VOA if your circumstances change – for instance, if your business moves to new premises or is affected by a local disruption, such as flooding or roadworks.
Why do business rates increase?
Your local council works out the business rates for each property in their constituency every year, which can fluctuate depending on your property’s potential rental value.
Each council raises their business rates at different speeds. We recently revealed that North West Leicestershire reported the largest rates increase over the last five years (29.13%), whereas North Lanarkshire Council saw a smaller increase of 11.49% in the same period.
How much business rates relief is offered per year?
The amount of money granted by local authorities varies yearly. To get an understanding of the regions offering the biggest levels of business rates relief, we sent out Freedom of Information requests that revealed over £2.6 billion of relief was granted in 2022.
The council offering the most support to businesses in 2022 was Tunbridge Wells , with a reported £135.5 million worth of relief given.
How can I save costs in my business to combat rising business rates?
The amount of tax businesses pay is a significant financial commitment which should be thoroughly researched before setting up a business.
To help minimise the impact of rising business rates, owners should consider reviewing commercial assets and stock regularly. Selling unused or redundant business assets, such as construction machinery, engineering equipment, and commercial vehicles can generate additional cash to be reinvested within the business or for an emergency fund.
At BPI, we recognise that every business has unique requirements when it comes to asset disposal. Whether you need to create space quickly or generate revenue fast, we can work with you to create a disposal solution to suit your specific needs.
By partnering with BPI, you can confidently navigate the asset disposal process while achieving exceptional results.