What are Small Business Rates?

At Towerstone Accountants we provide specialist property accountant services for property owners business owners and individuals dealing with property related taxes across the UK. This article has been written to explain what are business rates in clear practical terms so you can understand how the rules apply in real situations. Our aim is to help you stay compliant reduce uncertainty and know when professional advice is needed.

Business rates are one of those costs that many business owners only properly understand once the bill arrives. They are often compared to council tax, but the rules, reliefs, and calculations are very different. I regularly speak to small business owners who are unsure why they are paying business rates, how the amount is worked out, or whether they should be paying them at all.

In this article, I will explain clearly what business rates are in the UK, who has to pay them, how they are calculated, and what reliefs and exemptions may be available. I will also cover common situations that cause confusion, such as working from home, small shops, empty properties, and changes to premises.

Everything here reflects current UK rules as administered by HMRC, set by the Valuation Office Agency, and published through GOV.UK, explained in plain English rather than technical legislation.

The Simple Explanation

Business rates are a tax charged on non-domestic properties.

If you occupy a property that is used for business purposes, you may have to pay business rates to your local council.

They apply to properties such as:

Shops

Offices

Cafes and restaurants

Warehouses

Factories

Salons and clinics

Pubs and hotels

They can also apply to parts of a home used for business in some circumstances.

How Business Rates Compare to Council Tax

Business rates are similar in concept to council tax but they apply to businesses rather than households.

Council tax is charged on domestic property and is based on council tax bands.

Business rates are charged on non-domestic property and are based on the rateable value of the property.

You never pay both on the same space. A property or part of a property is either domestic or non-domestic for rating purposes.

Who Has to Pay Business Rates

You usually have to pay business rates if you occupy a property that is wholly or mainly used for business.

This includes:

Owners who use their own premises

Tenants leasing commercial space

Businesses operating from shops or offices

Some people running businesses from home

The person who occupies the property is usually responsible for paying the rates, not the owner, unless the property is empty.

What Is a Rateable Value?

The rateable value is the key figure used to calculate business rates.

It is an estimate of the property’s open market rental value, assessed by the Valuation Office Agency.

In simple terms, it represents what the property could have been rented for on a specific valuation date set by the government.

It is not based on your turnover or profit. It is based on the property itself.

Rateable values are reviewed periodically and can go up or down depending on market conditions.

How Business Rates Are Calculated

Business rates are calculated using a simple formula.

The rateable value is multiplied by a multiplier set by the government.

There are two main multipliers:

The standard multiplier

The small business multiplier

The small business multiplier is slightly lower and applies where small business relief is available.

Your local council then issues the bill based on this calculation.

Typical Business Rates Costs

Business rates vary widely depending on location and property size.

As a very rough guide:

A small shop or office with a low rateable value may pay little or nothing after reliefs

A modest high street unit may pay several thousand pounds per year

Larger commercial properties can face bills running into tens or hundreds of thousands

This is why understanding reliefs is critical for small businesses.

Small Business Rate Relief

Small Business Rate Relief is one of the most important reliefs available.

If your property has a rateable value below a certain threshold, you may qualify for relief that reduces or removes your business rates bill.

In many cases:

Properties with a rateable value under £12,000 receive 100 percent relief

Relief tapers off between £12,000 and £15,000

Above £15,000, small business relief usually does not apply

Exact thresholds can change, so checking current figures is important.

Many small businesses pay no business rates at all because of this relief.

Do You Have to Apply for Relief?

In most cases, small business rate relief is applied automatically, but not always.

If you occupy more than one property, relief may be restricted and you may need to notify your council.

If you think you should be receiving relief and are not, you should contact your local authority.

Business Rates on Empty Properties

Empty commercial properties are treated differently.

In general:

Empty properties receive a short period of rates relief

After that period, full business rates may become payable

The length of the empty property relief depends on the type of property. For example, shops and offices usually receive three months, while industrial properties may receive longer.

This is designed to encourage properties to be brought back into use.

Working From Home and Business Rates

This is a common area of confusion.

Running a business from home does not automatically mean you have to pay business rates.

In most cases, if you:

Use a room occasionally for work

Do not see clients at home

Do not make structural changes

Do not advertise the property as business premises

you will not be charged business rates.

However, if part of your home is used exclusively for business, such as a treatment room or office with client visits, that part of the property may be assessed for business rates.

Sometimes a property can be split, with part charged to council tax and part to business rates.

Business Rates for Online Businesses

If you run an online business without premises, such as working from home or using third-party fulfilment centres, business rates may not apply to you directly.

However, if you rent a warehouse, storage unit, or office, that space may be subject to business rates.

The nature of the business does not matter as much as the nature of the property.

Changes to Your Property or Use

If you make changes to your premises or change how it is used, this can affect business rates.

Examples include:

Expanding into additional space

Changing from storage to retail use

Adding a mezzanine or extension

Subletting part of the premises

You should inform the Valuation Office Agency of significant changes, as they can lead to a reassessment of rateable value.

Challenging Your Rateable Value

You have the right to challenge your rateable value if you believe it is incorrect.

This process is known as Check, Challenge, Appeal.

It involves:

Checking the facts held about your property

Challenging the valuation if necessary

Appealing if no agreement is reached

This process can be time-consuming, but it can result in reduced bills where valuations are inaccurate.

Business Rates vs Turnover Based Taxes

One of the frustrations for business owners is that business rates are payable regardless of profit.

Even if your business is struggling or making a loss, business rates may still be due.

This is because business rates are a property tax, not a tax on business performance.

Reliefs exist to soften the impact, but the system does not adjust automatically based on income.

Retail and Hospitality Relief

From time to time, the government introduces targeted reliefs for specific sectors.

Retail, hospitality, and leisure businesses have benefited from temporary reliefs in recent years, particularly during economic downturns.

These reliefs reduce bills for eligible properties and are usually applied by councils.

They are often time-limited, so businesses should not assume they are permanent.

How and When Business Rates Are Paid

Business rates are usually billed annually but paid in monthly instalments.

Your council sends a bill at the start of the financial year, usually in March or April.

You can normally spread payments over ten or twelve months.

If you move into or out of a property during the year, the bill is adjusted accordingly.

What Happens If You Do Not Pay

Business rates are legally enforceable.

If you do not pay, the council can take recovery action, which may include court proceedings and enforcement agents.

If you are struggling to pay, contacting the council early is essential. Many councils are willing to discuss payment plans.

Ignoring the issue usually makes it worse.

Business Rates and New Businesses

New businesses are often surprised by business rates bills.

Starting a business does not automatically mean you will pay business rates, but occupying commercial premises often does.

It is important to factor business rates into your startup costs alongside rent, utilities, and insurance.

Reliefs can make a big difference in the early years.

Common Misunderstandings

A very common misunderstanding is that business rates are set by HMRC. They are not. They are collected by local councils and valuations are set by the Valuation Office Agency.

Another misconception is that small businesses always pay business rates. Many do not because of reliefs.

Some people also assume business rates are negotiable. They are not, although valuations can be challenged and reliefs applied.

Practical Summary

Business rates are a tax on non-domestic property.

They are based on the rateable value of the property and a government-set multiplier.

Many small businesses pay little or nothing due to small business rate relief.

Rates are payable regardless of profit and are collected by local councils.

Understanding reliefs and checking your valuation can significantly reduce costs.

Final Thoughts

Business rates are one of the least popular business costs, largely because they feel disconnected from how a business is actually performing. However, they are a long-standing part of the UK tax system and are unlikely to disappear.

My advice is always to understand your rateable value, check your eligibility for reliefs, and review your bill carefully each year. Many small businesses overpay simply because they assume the bill is correct.

With the right knowledge and a bit of vigilance, business rates are manageable. Without it, they can quietly erode cash flow and profitability.

If you want to explore this topic further you may also find our guidance on how are business rates calculated and do i qualify for small business rate relief helpful. For a wider view of how business rates work reporting obligations and available reliefs you can visit our business rates hub which brings all related guidance together.