Understanding Business Rates: Making sure your business comes out on top
Updated: Aug 2, 2019
At a glance
- “Retail accounts for 5% of the economy yet pays 25% of all Business Rates.” (Helen Dickinson OBE, Chief Executive – British Retail Consortium)
- The first three months of 2019 saw the most retail insolvencies ever in one quarter. (French Duncan, 2019)
- The new business rate (poundage rate) for 2019-2020, 49p per £, is a 20% increase since 2010. (Scotsman, 2019)
What are business rates?
Business rates (also referred to as non-domestic rates) are a tax on business properties that help pay for local council services like education, social care and waste management. Businesses, charities, public and third sector organisations all have to pay business rates if they are the owner, tenant or occupier of a non-domestic property. Business owners that work from home also might need to pay business rates depending on the level of business use and whether a local assessor has assigned a rateable value to their home.
Business rates are calculated by multiplying the rateable value of a property by a tax rate known as “poundage”, less any rate relief and any other adjustments or pre-existing payments. Some assessors might use different methods to others when calculating rateable values, such as utilising the rental value of the property or floor space.
In addition to the standard business rate, there is an additional “large business supplement” which is set at 2.6p per £ for 2019-2020, raising the business rate for large businesses to 51.6p per £. The large business supplement is only paid by businesses with a rateable property value of over £51,000.
Business rates are at a 20 year high
On April 1st 2019, the Scottish government has released the poundage rate for 2019-2020, and the increase to 49p per £ is a 20% increase from the poundage rate just 10 years ago. According to Business Insider, MSP’s have confirmed that business rates in Scotland are at their highest level in 20 years.
As many high street businesses continue to shut their doors, many business groups have placed blame on the business rate system. Rising business rates are adding to the range of pressures that businesses are currently facing such as changing consumer shopping habits and changing composition of town centres.
Business Insider estimates that the increase in business rates in Scotland between 2018-19 and 2019-2020 will collectively add £13.2 million to retailers’ rates bill. This comes at an inopportune time as the Scottish Retail Consortium has found that 1 in 8 shops in Scottish town centres lie vacant.
The large business supplement rate in Scotland currently sits at 2.6p per £, double the amount for England and Wales, meaning that companies will spend more money to have a business located in Scotland than in England. For example, a large retailer with a location that has a rateable property value of £2,000,000 would spend £26,000 more in Scotland than in England or Wales. This might be a relatively small amount of money in isolation, however, for a large retail company like Debenhams that has 15 locations across Scotland, the large business supplement for Scotland will make a sizeable impact on finances. A Holyrood debate between MSP’s in November of 2018 highlighted that the large business supplement in Scotland has raised £381 million since the rate was doubled from 1.3p to 2.6p per pound in 2016, a £200 million increase since 2015.
Rate relief for qualifying business
Even though business rates are at a 20 year high, there are numerous rate relief schemes offered by the government that can reduce the amount payable by businesses or negate it entirely. As the rate relief offerings and requirements of some councils will differ slightly from one to another, it is recommended that businesses clarify specific details with their councils first. For example, businesses in certain areas may need to re-apply for rate reliefs, while certain councils carry out yearly reviews, and, in some cases, rate relief schemes can even be back-dated. There are rate relief schemes for many different types of businesses including; empty property, rural businesses, and renewable energy generation. As there are over 322,930 Scottish business with 9 employees or less and 23,700 registered Scottish charities, the following section will highlight the small business bonus and the charitable rate relief schemes.
Small business bonus scheme
For many councils, the most widely known and commonly applied for rate relief scheme is the small business bonus scheme. In Perth and Kinross approximately 65% of businesses, within the qualifying threshold, receive support through this scheme. Businesses qualify for this scheme if the collective rateable value of all business properties are £35,000 or less and the rateable value of individual properties is £18,000 or less. For the rest of the 35% of Perth and Kinross businesses that do not qualify, it is primarily due to the collective rateable value of all properties being above the £35,000 threshold.
The following rate reliefs in Scotland are available, based on the total value of all business properties.
100% rate relief if the rateable value of all business properties is £15,000 or less
25% rate relief if the rateable value of all business properties is between £15,001 and £18,000
Businesses that have more than one business property with a combined rateable value of up to £35,000, can receive 25% relief on each individual property, as long as the rateable value of each individual property is under £18,000. In 2019-20, businesses can save a maximum of £7,350 with the small business bonus rate relief scheme.
Charitable rate relief
Registered charities can apply for 80% rate relief but will only qualify if their property is primarily used for charitable purposes either by the charity occupying the property, or by other charities. In addition to registered charities, registered amateur community sports clubs may also apply for 80% rates relief. They qualify only if the property is mostly used by that club or by other registered community amateur sports clubs.
Councils have the ability to offer up to 20% additional relief on top of the 80%, meaning that some charitable business will not have to pay any business rates at all. Councils also have the ability to offer up to 100% relief on properties used by other not-for-profit organisations carrying out charitable, philanthropic, educational, welfare, science, creative arts or religious works / services. To determine eligibility and to apply for this rate relief scheme, businesses should check with their local council.
3 tips for successfully navigating business rates
With the landscape for businesses becoming increasingly difficult and profit margins decreasing, the following three tips will help businesses to plan for the cost of business rates and reduce their overall impact on the business.
1. Understand how business rates are calculated in your council area
How assessors assess the rateable value
What your business rate liability will be (including what changes to your business will impact the rates
2. Location is key
If looking for property, always check the rateable value first, as the rateable value will vary from property to property depending on its location
Established businesses should look up rateable values for other properties in their area to determine if they could pay less business rates by relocating
- For example, one business owner moved their business to a new store front on the high street. As a result, they now qualify for the small business bonus threshold and pay no business rates at all, saving them £6,000 per year
- Another example are two similarly sized vacant properties, separated by only 387 feet, with a difference of £13,181 in their business rates
3. Apply for Rate Relief schemes to lower the amount payable by your business;
Check to see if your business qualifies for any of the rate relief schemes offered by the government.
Rate relief schemes will vary from council to council, so it is best for businesses to be proactive and check with their own local council
Book a free consultation to discuss your business needs
Contact us and we can help your business improve your financial position by developing a business rate strategy to help your business save money and account for costs.
Strathearn Strategic Consulting
+44 (0) 7913 413 699