How are business rates calculated on a new commercial property?

Business rates are the financial contributions made by occupiers of non-domestic properties towards the essential services and facilities provided by local council to their residents. We take a look at how business rates are calculated on all commercial properties.

What are business rates?

Until March 2013, the money received from non-domestic rates was pooled at a national level and then redistributed by the government, depending on the size of the adult population of the area. Under legislation in 2013, local councils were authorised to retain around half the business rates collected in their area, but received less in direct government assistance. This was done to incentivise the councils to improve their local economies. The collected money is re-allocated by central government to local authorities directly, through a grant system. It is central government, not councils, who set the amount of business rate which is paid.

How are business rates calculated?

All properties have a ‘rateable value’. This figure is set by the Valuation Office Agency (VOA) and represents the rental value which a commercial property would have on the open market at a given date. The next revaluation of business rates in this country will take place in 2017 and will reflect the state of the economy as of April 2015 among many other factors to establish how much business rates will rise by.

To estimate how much a tenant of a new commercial property would have to pay in business rates they would have to search for their property on the VOA’s website by postcode. This will give them the rateable value of the property in question. This figure is then multiplied by a ‘multiplier’ – the number of pence per pound that they will have to pay in business rates subject to transitional relief.

Currently the multipliers are 49.7p for Standard businesses and 48.4p for Small businesses. (Businesses which have a rateable value of under £18,000 per year are classed as Small businesses.) This figure will give them the amount they must pay in business rates before any deductions for relief.

Relief

From next year, businesses which occupy a single property with a rateable value of £12,000 or less will pay nothing in business rates. This should be an automatic process via the local council but in some circumstances tenants will have to apply for it. The government expects that currently 60,000 businesses pay no business rates because of this exemption. There is also what’s called ‘tapered’ relief on properties whose business rates are up to £15,000.

Queries

The VOA has a free help service through which tenants can query the rateable value of the properties they occupy. Details can be found on their website. The Royal Institution of Chartered Surveyors (RICS) also offers advice through their qualified Ratings Surveyors.

At Eddisons we offer advice and guidance on every aspect of business rates, from establishing how much you’ll pay to challenging a ratings decision. If you need more information on any aspect of business rates, contact a member of our team.

Written by: Craig Newton on Monday 25/07/2016