Understanding Business Rates
Every business that uses a defined location to carry out its operations is required to pay the local authorities a non-domestic tax known as business rates for the premise. Business rates have been around since the establishment of the Poor Law in 1601, but the standardised system was implemented through later laws such as the Local Government Finance Act of 1988.
To come up with the tax, the Valuation Office Agency (VOA) assigns a Rateable Value to every property, which is based on a hypothetical annual rent on a specific date. This value is then multiplied by a multiplier (a percentage) that is set by the central government. The multiplier is reviewed every year, while the Rateable Value is reviewed after five years (with proposals to reduce this to three years).
Across the UK, many firms don’t check their business rates bills, often relying on what the local authority says is due. However, considering that business rates rank high among expenses incurred by companies, it helps to keep track of the bills since the Valuation Office Agency sometimes gets its wrong. A company such as RVA Surveyors, a specialist business rates company, can help a firm appeal a wrong valuation and save money in the process.
Setting the Rate
As mentioned, the VOA sets a rateable value based on a hypothetical rent at a set date for a location. To settle on this rate, the agency takes into consideration the use and size of the property. Then, it finds out how much it would cost to rent such a site in the area on a set date. Location plays an important role in calculating the rateable value.
The multiplier needed to calculate the business rates payable is set by the government, and the calculation also considers any reductions and reliefs. At the start of each financial year, the government provides two multipliers; the small business multiplier and the standard rating multiplier.
Local authorities that collect business rates keep a proportion of these monies based on retention arrangements introduced in April 2013. These arrangements provide a financial incentive for local authorities to work closely with businesses to create a conducive business environment. The money collected, together with revenue from other sources, is used to pay for the services provided by local authorities.
Relief is granted to various types of properties, including those that are vacant. Empty buildings don’t pay business rates for the first three months, and industrial premises such as factories and warehouses can get an extended exemption for an additional three months. For empty buildings that have a rateable value under £2,900, the business rates aren’t applied until the premises are reoccupied. Buildings owned by charities and sports clubs (that are used for amateur sports) are other property types exempt from rates for an extended period.
The reason for exempting these types of properties from business rates is to bring them back into use. Doing so allows owners to redevelop, re-let or sell the unused property so that businesses have access to premises, thereby reducing rents for firms.
Challenging the Rates
The Valuation Office Agency doesn’t always get it right, and sometimes businesses are stuck with bills that don’t reflect an accurate valuation of the property. Determining the rentable value of a premise is not always easy, while exemptions may not be applied correctly in the final bill presented to you. This is why it’s important to look at a reputable business rates firm such as RVA Surveyors, which can help in the review and management process, and potentially challenge the business rates charges presented to a business. The firm has been doing this for its clients for more than a decade.