How to calculate your business rates

At TechRound we recently explained registering your business, operating as a sole trader and paying corporation tax – today we’re covering business rates, the tax charged on your property.

This guide will focus on England and Wales. If you are in Scotland or Northern Ireland, the process and rates may vary.

What are business rates?

Business rates are charged on properties that are commercial or non-domestic, for example shops and holiday rentals. They are essentially very much like the council tax that you pay as a resident – the money goes to local authorities, which use them to fund services.

Do I need to pay business rates?

If you use any room or building specifically for business purposes, you may need to pay business rates. This is whether you own the property or lease it.

If you work from home, whether you need to pay depends on the nature of the space. For example, you don’t need to pay if you work by yourself in your home office or sell goods online. However, if you employ a team of people in your office or sell goods and services out of your home (e.g. using your garage for car repairs) you will need to pay.

There are also a few buildings that are exempt from business rates. If your business is agricultural, religious or provides for disabled people, you might be exempt. The requirements are very strict and you will need to apply.

How do I know my rate?

Your local council will bill you in February or March each year. They calculate your bill with the rateable value of your space, which is a combination of square footage and market value.

Before then, it’s a good idea to estimate your rate; it will ensure that you pay the correct amount and can plan for the future. It’s also important to do this if you are looking at new premises so you don’t run into any nasty surprises.

How to estimate your business rate

Here’s our simple guide to making an estimate of your rate, complete with a worked example.

1. Find the rateable value of your space

Click here to find your official valuation – all you need is the address.

For example, I’m using my old studio in Hackney, London. The rateable value is £8,800.

2. Multiply by the correct rate

There are two multipliers: standard, and small business. These represent how many pennies on the pound you need to pay. Some people call this ‘rate poundage’ or ‘poundage’.

If your business makes less than £51,000 a year, you use the small business multiplier. If it makes more, the standard multiplier applies.

 

Year  Standard multiplier  Small business multiplier
2018 to 2019  49.3p  48.0p
2017 to 2018 47.9p  46.6p
2016 to 2017  49.7p  48.4p

 

The threshold used to be much lower – before 2017, small businesses had to make less than £18,000 (£25,500 in Greater London).

My business makes less than £51,000 so I multiply £8,800 by 0.48, which is £4224.

3. Add any extra charges

You’ll need to check your local council for this. In London, for example, businesses with a rateable value of more than £70,000 will need to add an extra 2p per pound to pay for the Crossrail project.

If your business is based in the City of London, you will need to add 0.005p to every pound in order to make up for the lower number of people who live there.

4. Apply any relief

You may be able to claim relief, depending on your business and income. Some discounts are automatically applied by the council, for example relief for pubs (£1000 off the bill of any pub worth less than £100,000).

You will need to apply for others, like relief for charities and community sports clubs. You can even apply for temporary relief if your business is affected by flooding, building or roadworks.

Find out more about business rates relief here.

To finish my example, I would be able to claim small business rate relief because my studio’s rateable value is less than £15,000 and I only have one property. Because my space is worth less than £12,000 I don’t have to pay business rates at all – result!

I think I’ve been charged too much

It’s possible that your rate isn’t accurate – for example if you use one room in your property and have been billed on the whole space. You will need to speak to your council if this is the case.

How to pay

Your council will bill you in spring and will usually give the choice of paying one lump sum or in several instalments over the year. You can pay online, over the phone or set up a Direct Debit. Some councils will offer other ways to pay, such as at your local bank.