Strategies and Reliefs for Reducing Business Rates in 2024

Business rates, a significant overhead for many companies, are taxes levied on non-domestic properties. As we approach 2024, understanding how to manage and potentially reduce these costs is crucial for business sustainability and growth.

Given the financial pressures businesses face, exploring effective strategies and available reliefs can make a substantial difference in their bottom line.

Types of Business Rates

Business rates, often referred to as non-domestic rates, are a tax on properties used for commercial purposes. These rates are calculated based on the property’s rateable value, which is determined by the Valuation Office Agency (VOA) in the UK. The rateable value is essentially an estimate of the property’s open market rental value on a specific date. This valuation forms the basis for calculating the amount of business rates a company must pay.

There are several categories of business rates, each tailored to different types of properties and business activities. Standard business rates apply to most commercial properties, including offices, shops, and factories. These rates are straightforward and are calculated using the property’s rateable value and the uniform business rate (UBR) multiplier set by the government.

For businesses operating in the retail, hospitality, and leisure sectors, there are often specific rates and reliefs available. These sectors have been particularly impacted by economic fluctuations and policy changes, prompting the government to introduce tailored reliefs to support them. For instance, retail relief can significantly reduce the rates for shops, restaurants, and pubs, providing much-needed financial respite.

Another important category is small business rates. Small businesses often benefit from reduced rates or even exemptions, depending on their rateable value. The Small Business Rate Relief (SBRR) scheme is designed to support smaller enterprises by offering a sliding scale of relief, which can be a lifeline for businesses with limited financial resources.

Calculating Business Rates

Understanding how business rates are calculated is fundamental for any business owner. The process begins with determining the rateable value of the property, which is assessed by the Valuation Office Agency (VOA). This value is an estimate of the annual rent the property could achieve if it were available on the open market at a fixed valuation date. The most recent revaluation date was April 1, 2021, and these values are used to calculate rates payable from April 1, 2023.

Once the rateable value is established, the next step involves applying the Uniform Business Rate (UBR) multiplier. The UBR is set annually by the government and varies depending on the size of the business. For instance, there is a standard multiplier for larger businesses and a small business multiplier for those that qualify for Small Business Rate Relief. The multiplier is expressed in pence per pound of the rateable value, and it effectively converts the rateable value into the amount of business rates payable.

To illustrate, if a property has a rateable value of £50,000 and the UBR is 51.2p, the annual business rates would be £50,000 multiplied by 0.512, resulting in £25,600. It’s important to note that the UBR can be adjusted by the government to reflect economic conditions, inflation, and other factors, which means the amount payable can fluctuate year to year.

In addition to the basic calculation, businesses must also consider any transitional reliefs that may apply. Transitional reliefs are designed to phase in significant changes in business rates following a revaluation. This means that if a property’s rateable value increases or decreases substantially, the change in rates payable is gradually introduced over several years to prevent sudden financial shocks.

Business Rate Reliefs

Navigating the landscape of business rate reliefs can be a game-changer for many enterprises, offering significant financial reprieve. One of the most widely recognized reliefs is the Small Business Rate Relief (SBRR), which is designed to support smaller enterprises by reducing their rate burden. Businesses with a rateable value of £15,000 or less can benefit from this relief, with those having a rateable value below £12,000 potentially qualifying for 100% relief. This sliding scale ensures that smaller businesses, which often operate on tighter margins, receive the support they need to thrive.

Charitable organizations also have access to specific reliefs. Charities and community amateur sports clubs can apply for an 80% reduction in their business rates if the property is used for charitable purposes. Local councils have the discretion to grant further relief on the remaining 20%, providing substantial savings for these organizations. This relief is crucial for non-profits, allowing them to allocate more resources towards their core missions rather than operational costs.

Rural rate relief is another important provision, aimed at supporting businesses in rural areas with populations below 3,000. Qualifying businesses, such as the only village shop or post office with a rateable value of up to £8,500, can receive 50% rate relief. Local authorities may also top up this relief to 100% at their discretion. This support is vital for maintaining essential services in rural communities, where businesses often face unique challenges.

Enterprise Zones offer another avenue for relief. These designated areas are part of government initiatives to stimulate economic growth and development. Businesses setting up in Enterprise Zones can benefit from up to 100% business rate relief for a period of up to five years. This incentive is designed to attract investment, create jobs, and drive innovation in areas that need economic revitalization.

Strategies to Reduce Business Rates

Reducing business rates requires a multifaceted approach, starting with a thorough review of your property’s rateable value. Engaging a professional surveyor to assess whether your property has been overvalued can be a prudent first step. If discrepancies are found, an appeal can be lodged with the Valuation Office Agency, potentially leading to a lower rateable value and reduced rates.

Another effective strategy involves exploring opportunities for property improvements that qualify for rate relief. For instance, investing in energy-efficient upgrades can sometimes lead to temporary rate reductions. Additionally, if part of your property becomes unusable due to renovations or other factors, you may be eligible for a temporary reduction in rates through a process known as “material change of circumstances.”

Relocating to an area with lower business rates or into a property with a lower rateable value can also yield significant savings. This is particularly relevant for businesses that do not rely heavily on foot traffic and can operate effectively from less central locations. Moreover, sharing premises with other businesses can reduce individual rate burdens, as the overall rateable value is divided among multiple occupants.

Appeals Process

Navigating the appeals process can be a daunting task, but it is a crucial step for businesses that believe their rateable value has been incorrectly assessed. The first stage involves a “Check” where you verify the details of your property held by the Valuation Office Agency (VOA). This step ensures that all information, such as property size and usage, is accurate. If discrepancies are found, they can be corrected at this stage, potentially leading to a revised rateable value.

Following the Check, the next stage is the “Challenge.” Here, you formally dispute the rateable value by providing evidence to support your claim. This could include rental evidence, details of comparable properties, or any other relevant information. The VOA will review the evidence and make a decision. If the outcome is still unsatisfactory, the final stage is an “Appeal” to the Valuation Tribunal for England. This independent body will hear the case and make a binding decision. Engaging a professional advisor can be beneficial throughout this process, as they can provide expert guidance and increase the likelihood of a successful outcome.

Recent Changes in Legislation

Recent legislative changes have introduced new dynamics into the business rates landscape. One significant update is the introduction of more frequent revaluations, moving from a five-year to a three-year cycle. This change aims to ensure that rateable values more accurately reflect current market conditions, providing a fairer system for businesses. The next revaluation is scheduled for 2026, following the 2023 revaluation.

Another notable change is the introduction of the “Check, Challenge, Appeal” (CCA) system, which streamlines the appeals process. This system was designed to make it easier for businesses to dispute their rateable values and ensure that any errors are corrected promptly. Additionally, the government has introduced measures to support businesses affected by the COVID-19 pandemic, including temporary reliefs and grants. These measures have provided much-needed support to businesses struggling with the economic impact of the pandemic.