We know that businesses face many costs and outgoings over the year, and business rates are one that can be a tripping point for many organisations – especially small companies or new businesses still learning everything they need to know.
Understanding business rates can make for more robust planning and financial security, and that includes knowing how to save on business rates to give your company breathing room when things become challenging.
The team at Williams Sillitoe can help you understand business rates and uncover ways that could save you money by ensuring you are paying the lowest amount possible. To do that, we need to explain a bit more about them.
What Are Business Rates?
Business rates are a tax organisations must pay on the property – or properties – they use to carry out their business. This has been around for a long time, and was originally used to fund local communities. Where the funds go may have changed over the years but the purpose has remained the same.
Most businesses will pay this tax in some shape or form. The rates change at set periods, usually every five years, so that there is some consistency for business owners making long term plans.
How To Work Out Business Rates
There are two formulas when finding out how to work out business rates. These are for small businesses and other businesses, and it’s important to understand which one your organisation fits into to make sure you’re paying the right amount.
There are tools to figure this out for you, but the basic formula relies on multiplying the rateable value of your property by the multiplier. This will give you an estimate to work from and ensure you have enough funds set aside to avoid penalties in the future.
There are some business rate relief options that can affect this and help with the costs.
Who Pays Business Rates?
Business rates are paid by commercial property owners or occupiers, depending on the situation.
When a property is leased out, it is the tenant who pays business rates in most cases. If the agreement stipulates otherwise, it may still be for the building owner but this is unlikely and if you believe this to be the case, we recommend getting an independent verdict to avoid an unpleasant surprise later.
When a building is unoccupied, the property owner is responsible for paying business rates. A relief may be available for three months while the search for a tenant is ongoing, but this is not an indefinite option and should be budgeted for.
What Can You Do To Save On Business Rates?
As business rates increase at set periods, everyone who occupies a commercial property – or owns one if it is unoccupied – should be aware of what they can do to save on business rates.
Depending on the business, the property, and even where you are located, there are a number of ways to help save on business rates you have to pay. They’re not suitable for everyone, and it’s always best to seek expert advice before making any applications, but they can be a real lifeline for businesses.
Small Business Rate Relief
Small business rate relief is available for companies using one property with a rateable value under £15,000, but the discount you receive can vary.
- If the value is £12,000 or less, you’ll get a 100% relief on business rates.
- Between £12,001 and £15,000, the relief will range from 0 to 100%.
However, if your business operates out of more than one property, you may still be eligible for savings on your business rates. To qualify, your main property should have a rateable value of less than £15,000, and additional properties should not exceed a rateable value of £2,899. The total value of all properties should be less than £20,000 (or £28,000 in London), so it’s worth checking carefully to know what you’re entitled to.
Rural Rate Relief
Rural rate relief is a specific way to save on business rates for some organisations. It provides a 100% discount for a business located in a rural area with a population of less than 3,000 people.
There are other conditions to meet, though. This relief is available to small businesses only, and the rateable value of your property must be lower than £8,500 as the location’s only shop or post office. For a public house or petrol station, the rateable value must be less than £12,500.
Be aware that rural rate relief is different in Scotland, Wales, and Northern Ireland.
While business rates usually change at set periods, there are other times they could change, and this can be a headache for any organisation. The changes can have quite an impact on your financial situation, and transitional relief is designed to help your business adjust over time.
You can qualify for transitional relief on business rates if your property is in England, and the rates go up or down by more than a certain amount. Your payments will be automatically adjusted if you’re eligible but you can enquire with the relevant department if you don’t see those adjustments.
Retail, Hospitality And Leisure Relief
Retail, hospitality and leisure relief replaced the retail discount for the 2022/23 financial year. This is an evolution of the discount that started through the Covid outbreak and is designed to help businesses recover after a period of turbulence.
This is a 50% discount on business rates for properties being used as a shop, restaurant, cafe, pub, cinema, music venue, gym, spa, hotel, or other hospitality and leisure uses.
There is no indication, at the time of writing, what will replace this discount in the next financial year – if anything.
Find Out More About How To Save On Business Rates
Running a business is a real challenge. It can be rewarding and enjoyable, but there’s a lot that needs to be factored in and accounted for, such as business rates and other costs. It’s a good idea to be aware of everything that can reduce those outgoings and make your business more profitable.
If you’d like to know more about how to save on business rates, then get in touch with one of our experts at Williams Sillitoe today. We can help identify how much you should be paying in business rates based on your business and properties.