Business rates are one of the most significant fixed costs for UK businesses occupying commercial property. They are a local tax charged on most non-domestic premises, such as offices, shops, warehouses, and factories, providing critical funding for local authorities. Despite being a well-established tax, business rates remain complex, with rules on calculation, reliefs, and compliance changing over time across the UK’s devolved systems in England, Scotland, Wales, and Northern Ireland.
What this article is about
This article provides UK employers, finance directors, and business owners with a detailed guide to business rates. It explains what business rates are, how they are calculated, which reliefs and exemptions are available, and what compliance obligations businesses face. It also covers the impact on financial planning and steps to manage liabilities effectively, highlighting where rules differ across the UK’s nations.
Section A: What are Business Rates?
Business rates are a property-based tax charged on most non-domestic premises in the UK. They are sometimes referred to as non-domestic rates and represent a key source of funding for local government services, such as education, transport, and social care.
The legal framework for business rates is set out in the Local Government Finance Act 1988, which established the basis for how rates are assessed and collected. The responsibility for valuing properties lies with the Valuation Office Agency (VOA), part of HM Revenue & Customs, while billing and collection are handled by local authorities.
Business rates are payable on a wide range of commercial properties, including:
- Offices, shops, and restaurants
- Warehouses, factories, and industrial units
- Pubs, hotels, and guesthouses
- Non-domestic sections of mixed-use properties (for example, a shop with a flat above)
Certain properties are exempt from business rates, such as agricultural land and buildings, or those used for religious worship. Home-based businesses may also be exempt if only a small part of the property is used for business purposes, although this depends on the extent and nature of the work carried out. The VOA assesses each case individually.
It is important to distinguish between business rates and council tax. Council tax applies to domestic properties, whereas business rates apply to non-domestic properties. In some cases, such as mixed-use premises, both council tax and business rates may be payable.
Section A Summary
Business rates are a statutory tax on non-domestic properties across the UK. Administered by local authorities but based on valuations provided by the VOA, they apply to a wide range of business premises. Understanding whether your property is liable and under what rules is the first step in effective compliance and planning.
Section B: How Business Rates are Calculated
The amount a business pays in business rates is based on two key components: the rateable value of the property and the multiplier (also called the Uniform Business Rate).
1. Rateable Value
The rateable value is an estimate of the annual rent a property could have been let for on a specified valuation date. The Valuation Office Agency (VOA) assesses and sets these values. Following the latest revaluation, rateable values are based on the market rental value as at 1 April 2021, with the new list taking effect from 1 April 2023.
Businesses can check their property’s rateable value through the VOA online service. If a business believes its value is incorrect, it can use the Check, Challenge, Appeal (CCA) process to seek an adjustment.
2. The Multiplier (Uniform Business Rate)
The multiplier is the pence-in-the-pound figure set annually by the government and applied to the rateable value to determine the liability. There are usually two multipliers:
- The standard multiplier (for properties with a higher rateable value)
- The small business multiplier (for smaller properties that do not qualify for small business rate relief)
These multipliers vary across England, Scotland, Wales, and Northern Ireland, as business rates are a devolved matter.
3. Transitional Relief
Revaluations can significantly change liabilities, which can create cash flow challenges. To limit sudden increases, the government applies transitional relief schemes in England. These cap how much a business’s bill can go up or down each year after a revaluation, phasing changes in gradually. Scotland, Wales, and Northern Ireland operate under different arrangements, and not all apply transitional relief.
4. Worked Example
If a property has a rateable value of £50,000 and the standard multiplier is set at 54p in the pound, the annual business rates would be:
£50,000 × 0.54 = £27,000
Any eligible reliefs would then be applied to reduce this figure.
Section B Summary
Business rates are calculated using the property’s rateable value, as assessed by the VOA, and a government-set multiplier. Revaluations and transitional relief schemes are crucial factors in determining actual liabilities. For accurate forecasting, employers should regularly review their rateable values and understand how multipliers and reliefs apply across the UK’s devolved systems.
Section C: Reliefs and Exemptions
While business rates are a significant cost, a wide range of reliefs and exemptions are available to reduce liabilities. These reliefs are administered by local authorities, though businesses must usually apply rather than assume automatic entitlement.
1. Small Business Rate Relief (SBRR)
SBRR is available to businesses with properties of a lower rateable value. In England, properties with a rateable value of less than £15,000 may qualify, with full relief available under £12,000. Eligibility criteria and thresholds differ in Scotland, Wales, and Northern Ireland, each operating their own schemes.
2. Rural Rate Relief
Applies to small businesses in rural areas with populations below 3,000. For example, the only shop or post office in such an area may qualify for 100% relief. Similar but distinct relief schemes are also operated in devolved nations.
3. Charitable Rate Relief
Charities and registered community amateur sports clubs can qualify for 80% mandatory relief. Local authorities have discretion to increase this up to 100%.
4. Discretionary Relief
Local councils can provide additional reliefs at their discretion. These may include hardship relief or temporary support for particular sectors, though such relief is less predictable and often budget-dependent.
5. Empty Property Relief
Properties that are unoccupied may receive relief from business rates. Typically, industrial premises qualify for 100% relief for six months, while other property types qualify for three months, after which full rates usually become payable unless other exemptions apply. The details of empty property relief can differ in devolved administrations.
6. Enterprise Zones and Special Schemes
Businesses operating in designated enterprise zones, freeports, or other targeted development areas may be entitled to enhanced reliefs or exemptions to encourage investment and job creation.
7. Application Process
Most reliefs are not applied automatically. Businesses must contact their local authority, provide evidence of eligibility, and, in some cases, renew applications annually. Failure to apply promptly can result in lost opportunities for savings.
Section C Summary
Reliefs and exemptions can significantly reduce business rates liabilities, but they require proactive management. Employers should assess all available schemes, apply within deadlines, and maintain records to ensure compliance. This can make a material difference to cash flow and business planning.
Section D: Compliance and Business Considerations
Business rates are not just a tax liability — they are also a compliance responsibility that can have direct implications for a business’s cash flow, property decisions, and financial management. Employers and finance leaders need to ensure payments are accurate, timely, and strategically managed.
1. Payment Deadlines and Instalments
Business rates are billed annually by local authorities, typically in February or March for the upcoming financial year starting in April. Payments are usually made in ten monthly instalments, although businesses can request a twelve-month payment plan to spread costs more evenly. Missing payment deadlines can lead to enforcement action and additional costs.
2. Consequences of Non-Payment
If payments are not made, local authorities can issue reminders and, ultimately, liability orders through the courts. Bailiffs, enforcement agents, or even bankruptcy proceedings may follow. Non-payment can damage relationships with local authorities and create reputational risks.
3. Appealing a Rateable Value
Businesses that disagree with their rateable value can challenge it through the Check, Challenge, Appeal (CCA) process in England and Wales. This requires structured evidence and clear reasoning. Appeals must be timely and can be complex, often requiring professional valuation support. Scotland and Northern Ireland operate different appeal systems, so businesses must follow local procedures.
4. Strategic Business Considerations
Business rates are a major factor in property decisions. Employers and finance directors should consider:
- Cash flow planning: forecasting annual liabilities and aligning them with revenue cycles
- Lease negotiations: negotiating with landlords over rate liabilities, especially in shared or mixed-use premises
- Location choices: assessing rates as part of wider location strategy, as liabilities vary significantly by area
- Sector-specific reliefs: keeping abreast of temporary government support packages, such as retail, hospitality, or leisure reliefs offered in recent years
Section D Summary
Compliance with business rates involves more than paying bills on time. Employers must monitor valuations, manage appeals, and integrate liabilities into broader financial and property planning. Proactive management can prevent disputes, avoid penalties, and ensure business rates are factored into long-term strategic decisions.
FAQs
Who is responsible for paying business rates in shared premises?
Responsibility usually falls on the occupier of each separate unit within a shared property. Where premises are not separately assessed, the landlord may be liable and recover costs through service charges or lease agreements.
How often are rateable values reassessed?
Revaluations are typically carried out every three years. The most recent revaluation took effect from 1 April 2023, based on rental values as at 1 April 2021.
Can I get a refund if my property is revalued?
If a successful appeal reduces the rateable value, refunds are issued for overpaid business rates. Interest may sometimes be added, though this depends on local authority policy.
Are home-based businesses subject to business rates?
In most cases, home-based businesses are not liable unless a significant part of the property is used for business purposes (such as a workshop, salon, or converted office space). The VOA assesses each case individually.
What happens if I fall behind on business rates payments?
Local authorities can issue reminders and obtain liability orders through the courts. Enforcement action may follow, including the use of bailiffs or bankruptcy proceedings in severe cases. Arrangements to spread payments can sometimes be negotiated if approached early.
Conclusion
Business rates remain one of the most significant fixed costs for UK businesses occupying commercial property. They are legally complex, influenced by property valuations, government-set multipliers, and a range of reliefs and exemptions. Employers and finance directors must not only ensure payments are accurate and timely but also plan strategically to mitigate liabilities.
Key compliance priorities include monitoring rateable values, applying for available reliefs, and managing payment schedules to protect cash flow. Strategic considerations, such as how business rates affect location and lease decisions, are equally important.
By understanding the system and engaging with the VOA and local authorities where appropriate, businesses can reduce risks, avoid penalties, and ensure they take full advantage of reliefs. Seeking professional advice can be valuable for complex appeals or large property portfolios.
Glossary
| Term | Definition |
|---|---|
| Business Rates | A local tax charged on most non-domestic properties, funding local services. |
| Rateable Value | The assessed rental value of a property, set by the VOA, used to calculate business rates. |
| Multiplier (UBR) | The pence-per-pound rate set annually by the government and applied to the rateable value. |
| Valuation Office Agency (VOA) | The government agency responsible for assessing rateable values of properties. |
| Transitional Relief | A scheme limiting how much business rate bills can increase or decrease after revaluations. |
| Small Business Rate Relief (SBRR) | Relief available to businesses with properties below certain rateable value thresholds. |
| Empty Property Relief | Temporary relief available when business premises are unoccupied. |
Useful Links
| Resource | Link |
|---|---|
| GOV.UK – Business Rates Overview | https://www.gov.uk/introduction-to-business-rates |
| GOV.UK – Business Rates Relief | https://www.gov.uk/apply-for-business-rate-relief |
| VOA – Check and Challenge Service | https://www.gov.uk/guidance/check-and-challenge-your-business-rates-valuation |
| GOV.UK – Pay Your Business Rates | https://www.gov.uk/pay-business-rates |
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
