Rent Reviews and Rating Assessments

4. Understanding Rates

4.1 Most business premises are subject to business rates.

• Living accommodation - including most accommodation within business premises - is subject to council tax.
• Business rates are normally payable by the occupier of the premises.
• If your lease or licence agreement states that the rent is inclusive of rates, it is your landlord who is responsible for paying the rates. If the landlord defaults, the local council can pursue the occupier.

4.2 The amount you pay in rates is based on the rateable value of your premises.

The Valuation Office Agency provides summary valuations showing how your rateable value has been calculated. You can also find out your notional business rate liability at www.mybusinessrates.gov.uk.

• The basic level of rateable value usually remains fixed for a five-year period. The rateable values which became effective on 1 April 2005 were based on open market rental values on 1 April 2003.
• Any new premises (or any changes to existing premises) are valued as they would have been in April 2003.
• The next revaluation is expected to come into force on 1 April 2010. Any national increase in rateable values should be offset by a comparable reduction in the multiplier (see 4.3).
• The rateable value is the same, whether the premises are owner-occupied, leased or licensed.

4.3 The normal rates payable are calculated by multiplying the rateable value by the multiplier. The multiplier (sometimes called the Uniform Business Rate or UBR) usually increases each year in line with inflation.

• For the year starting 1 April 2005, the standard multiplier in England is 42.2 pence per pound. So for a building with a rateable value of £50,000, the annual rates would normally be £21,100, but this could be subject to transitional arrangements.
• A lower small business multiplier, 41.5p, is used for businesses eligible for Small Business Rate Relief (SBRR) (see 4.4).
• Special rules apply in the City of London, which usually charges a small supplement over the standard multiplier.

4.4 Businesses in England which occupy only one main property with a low rateable value can get SBRR.

• If the rateable value of your building is up to and including £5,000, you are eligible for 50 per cent relief.
• For rateable values between £5,000 and £9,999, the percentage reduction decreases on a sliding scale by 1 per cent for every £100.
• For rateable values between £10,000 and £14,999 (or up to £21,499 in London), there is no percentage reduction but the small business multiplier is used.
• Businesses that occupy additional properties may still be able to claim the relief on the main property, provided that the total rateable value of all the properties is less than £15,000 (£21,500 in London). Apart from the main property, the rateable value of each additional property must be less than £2,200.
• SBRR is not automatic - you have to apply to your local authority.You now only need to apply once every five-year valuation period. This means that if you apply for relief for 2007-08, you will not have to re-apply until 2010, when the next five-year valuation cycle begins. You must inform your local authority if your circumstances change in any way that is likely to affect your entitlement to SBRR, for example, moving to new premises.

4.5 You may qualify for other reliefs.

• If the property (or part of the property) is empty, you may qualify for rates relief.
• For empty premises, the relief is 100 per cent of the occupied rate for the first three months. After that, the relief is usually reduced to 50 per cent (industrial and storage premises remain at 100 per cent).
• Listed properties and those with a rateable value of under £2,200 are exempt from empty property rate.
• There are a number of specific reliefs for properties in rural areas and for charities and qualifying amateur sports clubs.

4.6 If your rates increased or decreased sharply following the revaluation in April 2005, they may be subject to transitional arrangements. These phase in major increases or decreases by setting caps on the level of change.

• For the year up to 31 March 2007, increases are capped at 5 per cent plus inflation for small business premises with a rateable value of less than £15,000 (£21,500 in London).
• The equivalent limit on increases for larger business properties is 12.5 per cent, plus inflation.
• Decreases are limited to 30 per cent (small businesses) and 12.5 per cent (larger businesses).

4.7 You receive the rate demand from your local authority each year around 1 April. You have a choice of when to pay.

• Most businesses choose to pay in ten equal monthly instalments.
• You can also pay the whole amount immediately, or pay half immediately and the other half on 1 October.