≡ Menu

What small businesses need to know about the changes in business rates?

With the rise of e-commerce, the retail industry, and in particular the high-street retailers, has suffered hugely. Coupled with this, running a business always requires some risk, and the economic uncertainty only makes it tougher.

What small businesses need to know about the changes in business rates?

Since 1st April 2019, changes in our tax system have introduced new provisions on small businesses; namely a cut in business rates. Business rates are a tax on a property used for business purposes. They are annual fees levied on certain non-domestic properties or buildings where activities are non-domestic in nature. Non-domestic properties include shops, offices, pubs, and warehouses. As such, business rates must be paid for the operation of these buildings.

In layman terms, these rates are the non-domestic equivalent of council tax. These rates are paid to your council. You will receive a bill from them every February or March with your charge for the following year. The amount you have to pay for business rates will depend on the rateable value of your property and the multiplier used.

This rateable value is calculated by the Valuation Office Agency, a body that provides property valuation and advice to the government. There are two multiplier values: standard and small business.

Here we look at the recent changes in business rates as told by QVcredit.

So what are the recent changes with business rates, and how does it affect you if you are a small business owner?

Essentially, more uptown shops and pubs may experience a cut in business rates over the span of the next two years. Eligibility to apply for the rate reduction is dependable on if the rateable value of your premises hits a certain cap. For example, if the rateable value of your premise is below £51,000, your business will receive a one-third discount to your rates bill.

However, it is important for all business owners not to rejoice too fast. As council tax, utility bills, and increased obligatory costs like auto-enrolment pension contributions continue to rise, we must take all these changes to the tax system into consideration.

A few organisations have expressed their criticism of the business rates system, deeming it an unfair and regressive system. And despite the discount, revenue from business rates for the 2019-2020 year are expected to increase overall.

So when was the change decided? And how was it implemented?

During the Autumn Budget on October 2018, the change to business rates for the years 2019-2021 was announced and has been in place since 1st April 2019.

To calculate the value of your premises and estimate your business rates, you can do so via the online tool on the gov.uk website.

Although this cut in business rates may help small-business-enterprises, it isn’t the antidote for all the issues troubling small businesses today. However, it is a positive move in the journey to developing the optimum business environment for small-business-enterprises to thrive and operate in.

What do business rates cover?

Business rates encompass payment for various services provided by the local authorities and the government. For example, cleaning and maintenance of public streets, street lighting, and emergency services.

Are there any exemptions to business rates?

Certain properties are exempt from business rates. Firstly, the small business rate relief. The rateable value of your property must be less than £15,000, and your business only uses one property in order to be eligible for this category of exemption. You will not pay business rates on a property with a rateable value of £12,000 or less. For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%.

For example, if the rateable value of your property is £13,500, there will be 50% off your bill. If your business acquires a second property, you’ll keep getting any existing relief on your main property for 12 months.

Secondly, the rural rate relief. Your business is eligible for rural rate relief if your business is in a rural area with a population below 3,000. You do not have to pay business rates if your business is in an eligible area, for example, if you are the only village shop or post office with a rateable value of up to £8,500 or the only public house or petrol station with a rateable value of up to £12,500.

The charitable rate relief also applies to charities and community amateur sports clubs for up to 80% of their bill if a property is used for charitable purposes. For certain charities, they are eligible for discretionary relief, which means to top their discount up to 100%.

If your business is starting or relocating to an enterprise zone you could qualify for business rates relief under the enterprise zone category. Your local council will determine and calculate out how the relief is applied to your bill, and you could get up to £55,000 a year over 5 years. Be sure to check what your local enterprise zone is to see if it offers business rates relief, and how and when to apply.

For all these exemptions, it is best for you can check with your local council to see if you’re eligible and if you need to apply for it, as in certain cases it is automatically applied for you.

If you’re reading this from the other side of the border in Scotland, it is important to note that business rates are calculated differently for businesses in Scotland. Consult the appropriate source or council in the country to determine the rate you pay.

What do you do if you think you’re paying too much?

The foremost step is to begin by calculating your business rates using the calculator on the gov.uk website. You can then check to see if you’re eligible for the various rate reliefs that are available. If the nature of the business in the building you work in has changed, the amount you pay for business rates may change as well. Alternatively, you can also consider applying for a loan which can help lighten the financial commitment you may have to take on for your business.

Hopefully, this guide gives you a better understanding of how business rates work here in the UK! Always remember that the rates will depend on where you operate from, so don’t make assumptions and check how it works in your specific area.

More on small business tax rates and allowances and small business tax.

Hiscox Business Insurance
Pay with monthly direct debits