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Part one: who pays business rates?
In this section we will tell you about:
- who has to pay business rates
- how the council works out your bill
- reliefs and exemptions from the business rates
Q1 Who has to pay the business rates?
The occupier of a non-domestic property normally pays the business rates – usually this is the owner-occupier or leaseholder. If a property is empty, the owner or leaseholder may be liable to pay business rates on the property, although this will be at a reduced rate (see reliefs - part two).
Q2 What is a non-domestic property?
Non-domestic properties - often referred to as “hereditaments” - are business properties such as shops, offices, warehouses and factories and any other property that is not classed as domestic, such as that occupied by charities and voluntary organisations. In some cases, properties may be used for both domestic and non-domestic use (for example, a shop with a flat above it), in which case both council tax and business rates will be charged on the relevant portion of the property.
Q3 What if I work from home?
If you work from home, your local council may charge business rates for the part of the property used for work, and you will have to pay council tax for the rest of the property (although your property’s valuation band may change). It will depend on the circumstances of your case and you should ask your local valuation office for advice. Details are at the back of this guide.
Q4 What if I own a holiday home or a bed-and-breakfast?
Unless you plan to let your holiday home for at least 140 days a year, you will not have to pay business rates on the property. You will have to pay council tax instead.
If you offer bed-and-breakfast accommodation in your own home to six people (or fewer), you will not be liable for business rates as long as you are living in the property. Instead, you will have to pay council tax on the whole property.
If you let your holiday home for 140 days a year or more, or you provide bed-and-breakfast for more than six people at any one time, you will have to pay business rates on the whole or part of your property. You will still have to pay council tax on the part of your property you use as your home.
Q5 Are any non-domestic properties exempt from business rates?
Some types of property are exempt from business rates. This means that no business rates are charged for them. Exempt properties include:
- agricultural land and buildings
- fish farms
- some churches and other places of public religious worship
- sewers
- public parks
- certain property used for the disabled
- swinging moorings for boats.
The business rates bill
Q6 How much will I have to pay?
Every non-domestic property, unless it is exempt, has a rateable value. We explain rateable values, and how you can challenge them if you want to, in part three of this guide.
Your local council works out your business rates bill using a multiplier, which the government sets with effect from 1 April each year for the whole of England. There are two multipliers: for those receiving small business rate relief (see reliefs - part two), the small business non-domestic rating multiplier is used; for all other ratepayers, the non-domestic rating multiplier is used.
The non-domestic rating multiplier is made up of the small business non-domestic rating multiplier plus a small supplement to fund small business rate relief. For example, in 2007-08, the small business multiplier was set at 44.1p and the non-domestic rating multiplier was set at 44.4p. So, if you are not receiving small business rate relief and your rateable value is, say, £25,000, the local authority will multiply this by 44.4p and your bill for the year will be £11,100.
This may be the amount you have to pay, but it could be reduced by any transitional or other reliefs (see part two below).
Q7 When and why do the multipliers change?
The government normally changes the multipliers every year to move in line with inflation and, in the case of the non-domestic rating multiplier, to take account of the cost of funding small business rate relief. This is so that the value of the money raised through business rates to fund local services each year stays the same.
Q8 What is revaluation?
A revaluation of the rateable values of non-domestic properties (see Q22) is undertaken by the VOA every five years. The purpose of a revaluation is to update the rateable value in line with changes in the property market.
The next revaluation is due in 2010.
Q9 What about the change in the multipliers, following a revaluation?
Following a revaluation, the multipliers may change by a different amount than is explained in Q7, but the total amount raised by the business rates will stay the same after allowing for inflation. So, if the total level of rateable values goes up because property values in general have risen, the multipliers will fall to make sure that the value of the total amount raised from ratepayers stays the same.
Q10 What are transitional arrangements and why do we have them?
At each revaluation, a transitional scheme is also introduced to protect the ratepayer from sharp increases in their rates bill. This is because property values, which affect the rental potential of the property and therefore the rateable value on which rate bills are calculated, change a good deal between each revaluation. Transitional relief is designed to ease the impact of revaluation, by phasing in the changes to the rates bill over a period of time. Increases up to the amount which would be paid based on the new rateable value without any transitional arrangements are phased in over a maximum of four years.
To help pay for the limits on increases in bills after a revaluation, there are also limits on reductions in bills (see Q12).
The transitional scheme introduced in England following the revaluation in 2005 ensured that business rate bills did not change beyond certain limits in 2005-06. Many bills changed by less than these amounts and the amount payable depended on a number of factors that are described more fully in the next section.
Under the transitional relief scheme, limits continue to apply to yearly increases and decreases in the following years over the four year life of the scheme until the full bill is payable (rateable value times the multiplier).
The transitional arrangements apply only to the bill based on your property at the time of the revaluation. If there are any changes to the rateable value of the property (eg because an extension has been added) after the revaluation date, transitional arrangements will not normally apply to the part of your bill that applies to any increase or decrease in rateable value due to those changes.
Q11 How are increases limited?
Transitional limits apply if, in any year, the amount you would have to pay (based on your rateable value times the small business multiplier) is higher than the previous year’s bill (based on the amount due on 31 March) by more than the amounts shown below. If this is the case, your bill will be increased by these amounts.
Year Small property
(rateable value of less than £15,000 or £21,5000 in Greater London)Large property
(all others)2005-06 5% 12.5% 2006-07 7.5% 17.5% 2007-08 10% 20% 2008-09 15% 25% 2009-10 n/a n/a But remember, after these limits have been applied to your bill, your bill will still increase in line with inflation. This is based on the retail price index in the previous September.
Please note that your rates bill will also include a supplement if you are not receiving small business rate relief (see Q6)
Q12 Are reductions in bills limited too?
Yes. Transitional limits also apply if, in any year, the amount you would have to pay (based on your rateable value times the small business multiplier) is lower than the previous year’s bill (based on the amount due on 31 March) by more than the amounts shown below. If this is the case, your bill will be reduced by these amounts.
Year Small property
(rateable value of less than £15,000 or £21,5000 in Greater London)Large property
(all others)2005-06 30% 12.5% 2006-07 30% 12.5% 2007-08 35% 14% 2008-09 60% 25% 2009-10 n/a n/a But remember, after your bill has been reduced by these limits, your bill will still increase in line with inflation. This is based on the retail price index in the previous September.
Please note that your rates bill will also include a supplement if you are not receiving small business rate relief (see Q6)
Published 2 July 2007
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