Sarah Bradford explains when small business rate relief is available and highlights the need to claim the relief.
Business rates are charged on non-domestic properties and are likely to be payable where all or part of a building is used for non-domestic purposes. Thus, business rates are payable on:
- shops
- offices
- pubs
- warehouses
- factories
- holiday rental homes
- guesthouses
Business rates are collected by local councils. Businesses will generally receive a rates bill in February or March each year for the following tax year. It is advisable to check the bill is correct and that any available reliefs have been claimed.
How business rates are calculated
Business rates in England and Wales are calculated by applying the relevant multiplier for the tax year by the rateable value of the property.
The rateable value is the open market rental value of the property on 1 April 2015, as estimated by the Valuation Office Agency (VOA). The rateable value of the property will be shown on the business rates bill. It is also possible to check the rateable value of the property online using the tool which can be found on the Gov.uk website: www.gov.uk/correct-your-business-rates.
Properties are revalued for business rates purposes every five years. The latest revaluation took place on 1 April 2015, and the values set at this revaluation have been used to calculate business rates since 1 April 2017.
The rateable value determines whether the standard or small business multiplier is used, and also whether small business rate relief is in point. Therefore, it is important that it is correct. If you feel that the valuation is too high, you can ask the VOA to explain how they arrived at the valuation. If the information on which the valuation is based is not factually correct, or if it has been affected by external factors, you can challenge the valuation.
In England, there are two multipliers – the standard multiplier and the small business multiplier. The standard multiplier applies where the rateable value is £51,000 or more, whereas the small business multiplier applies where the rateable value is less than £51,000. Multipliers are set separately for the City of London and the rest of England. A single multiplier applies in Wales. The multiplier is specified in the form of pence per pound of rateable value.
For 2019/20, the multipliers in England are as shown in the table below.
City of London Rest of England
Standard multiplier 51p 50.4p
Small 49.7p 49.1p
In Wales, a single multiplier applies, set at 52.6p for 2019/20.
Example 1: Rateable value over £51,000
Blue Ltd operates from extensive business premises in Surrey, which have a rateable value of £62,000.
As the rateable value exceeds £51,000, the standard multiplier is used to work out the company’s business rates. The appropriate multiplier is 50.4p. Consequently, the business rates for 2019/20 are £31,248 (i.e. £62,000 x 0.504).
Example 2: Rateable value under £51,000
Green Ltd operates a fitness studio and spa in the Shropshire countryside. The premises have a rateable value of £24,000.
As the rateable value is less than £51,000, the small business multiplier of 49.1p is used to work out the business rates. Consequently, the business rates for 2019/20 are £11,784 (i.e. £24,000 x 0.491).
Example 3: London property
Yellow Ltd has an office in the City of London with a rateable value of £75,000. The standard multiplier for the City of London of 51p is used to work out the business rates.
Consequently, the business rates for 2019/20 are £38,250 (i.e. £75,000 x 0.491).
Are you eligible for small business rate relief?
The current system of business rates was introduced with effect from 1 April 2017.
There are various reliefs available, one of which is small business rate relief. The system of relief depends on whether the business premises are in England or Wales.
In England, small business rate relief is available if the property’s rateable value is less than £15,000 and the business only uses one property.
The amount of the relief depends on the rateable value. Where the rateable value is £12,000 or less, the rate of relief is 100%. This means that a business with only one property, which has a rateable value of £12,000 or less, does not need to pay business rates.
However, there is a sting in the tail – the relief must be claimed. It is not given automatically where the rateable value is £12,000 or less. If the relief is not claimed, the rates will be calculated using the small business multiplier. This may catch out the unwary, who may end up paying business rates that they do not need to pay.
Example 4: Small business rate full relief
Purple Ltd operates a shop in a small village in Yorkshire. The rateable value is £5,000.
The business rates are initially calculated by reference to the small business multiplier, set at 49.1p, giving an initial bill of £2,455. However, 100% small business rate relief is claimed, reducing the bill to nil.
A tapered relief is available where the valuation is between £12,000 and £15,000. The relief is gradually reduced from 100% where the rateable value is £12,000 to nil where the rateable value is £15,000.
The amount of the relief is found by applying the following formula:
(£15,000 – x) / (£15,000 - £12,000) x 100%
Where x is the rateable value of the property.
Example 5: Small business rate taper relief
Turquoise Ltd has one property only with a rateable value of £14,000. They are eligible to claim small business taper relief.
The percentage relief to which they are entitled is found as follows:
(£15,000 - £14,000) / (15,000 - £12,000) x 100% = 33.33%
The bill is initially calculated using the small business multiplier of 49.1p, giving a business rates bill of £6,874. Small business rate taper relief is claimed, reducing the bill by 33.33% (£2,291.33) to £4,582.66.
In Wales, 100% relief is available where the rateable value is up to £6,000, and taper relief is available where the rateable value is between £6,000 and £12,000.
Retrospective claims
Businesses that are eligible for small business rate relief but did not realise this may have overpaid business rates for a number of years. Retrospective claims for relief can be made back to 2017/18 under the current system, and possibly further back under the previous system (although different rules applied prior to 1 April 2017).
Once a claim has been made for small business rate relief, the relief will be applied to future years – while the relief must be claimed, a claim only needs to be made once.
Example 6: Retrospective claim for small business rate full relief
Magenta Ltd has business premises outside London with a rateable value of £9,000.
They did not claim small business rate relief for 2017/18 or 2018/19, as they were not aware that they needed to make a claim. As a result, they paid business rates of £4,320 for 2018/19 (based on the small business multiplier for that year of 48p) and business rates of £4,194 for 2017/18 (based on the small business multiplier of 46.6p for that year).
The company makes a retrospective claim for 100% small business rate relief from 1 April 2017. They receive a repayment of £8,514 and their business rates for 2019/20 are reduced to nil.
Example 7: Retrospective claim for small business rate partial relief
Orange Ltd has business premises outside London with a rateable value of £13,500. They are entitled to small business rate taper relief of 50% (£1,500/£3,000 x 100%) but have not claimed the relief. As a result, they paid business rates of £6,480 for 2018/19 (£13,500 x 0.48) and business rates of £6,291 for 2018/19 (£13,500 x 0.466).
They make a retrospective claim for the relief. The bill for 2017/18 is reduced to £3,240 and the bill for 2017/18 is reduced to £3,145.50. They receive a refund of £6,385,50.
Their business rate bill for 2019/20 (initially set at £6,628.50 (£13,500 x 0.491) is reduced by 50% and small business rate relief to £3,314.25.
Practical tip
Check whether a business is eligible for small business rate relief and, if so, whether it has been claimed. Also, check past bills and make a retrospective claim if need be – it may be possible to obtain a significant refund.
