Business Rates Explained
Business rates in the UK are taxes imposed on businesses by the central government for local services and are collected by the local authorities. Typically, business rates are charged on non-domestic properties such as offices, factories, shops, warehouse and pubs.
Business rates are calculated based on the value of the property occupied. In the UK, the Valuation Office Agency decides the property (rateable) value, which is multiplied by the business rates multiplier determined by the central government. The multiplier is the number of pence per GBP of the tax that the business owner will have to pay, before any discount or relief is deducted. In Scotland, the property (rateable) value is determined by the local agency based on the estimated market rental value on a specific date and it is multiplied by the multiplier, known as poundage rate, determined by the government as a proportion of the property.
Revaluation of business ratesBusiness rates are revised so that they change in line with inflation. This means that a change in the property (rateable) value may not have a significant impact on the amount of tax due, if there are no major variations in the inflation rate. In the UK, revised business rates are validated by the relevant Valuation Office Agency (VOA) by providing evidence of updated rental property. The revaluation of business rates typically takes place every five years to mirror changes in the real estate market. The last revaluation in the UK took place on 1 April 2010 and it is expected to occur on 1 April 2017.
Exceptions & ReliefsPeople who exploit a building or a property or a part of a building or a property for non-domestic use are obliged to pay business rates. However, in the UK there are certain exemptions, which include fish farms, agricultural land and buildings, buildings used for training or welfare of disabled people, church halls and buildings of public religious worship. In Scotland, buildings used for training or welfare of disabled people, church halls and buildings of public religious worship are eligible for a relief instead of being exempt. In addition, empty buildings are exempt for three months or six months for industrial premises, but after this period of time owners are obliged to pay full business rates.
In regards to business rates relief schemes, they may include:
Owners of properties with a rateable value which does not exceed 12,000 GBP may be eligible for a small business rate relief. Typically, the business rates bill is issued each March. So, until 31 March 2014 there is 100% relief on properties of rateable value of 6,000 GBP or less. The rate of relief regularly decreases from 100% to 0% for properties with a rateable value between 6,001 GBP and 12,000 GBP. Owners of more than one property are eligible to apply for a small business rate relief if the rateable value of each property does not exceed 2,600 GBP.
Owners of buildings located in a rural area with a population less than 3,000 people may qualify for a rural rate relief. In doing so, they may get 50% to 100% of the business rate. Prerequisites are a rateable value of up to 8,500 GBP if the business is the sole post office or a village shop in the area or a rateable value of up to 12,500 GBP if the business is the sole public house or gas station in the zone.
If a property is used for charities, business owners may qualify for a charitable rate relief up to 80%.
If the property (rateable) value changes significantly due to revaluation, business rates change accordingly and there is eligibility for transitional rate relief. Business rates increase or decrease according to the property size. In particular, for a small size property until 2015 they can increase between 5% and 15% and decrease between 20% and 55%, while for a large size property they can increase from 12.5 to 25% and decrease between 4.6% and 13%.
The deferral scheme allows business owners to spread the Retail Price Index increase of 3.2% of their business rates bill over three years. Typically, business owners apply for a deferral scheme until 31 March provided that there is an amount due to be paid.
Business owners who are interested in starting up or relocating their business in an enterprise zone may be eligible for an enterprise zone relief. Maximum relief is up to 100% business rate relief for five years for a rateable value of 275,000 GBP.
Empty buildings are eligible for a relief scheme if the are properties owned by charities or community amateur sports clubs, if their rateable value does not exceed 2,600 GBP until further use, and if they are listed as empty until they are reoccupied.