October 2, 2022

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How your Business Rates are calculated

If you own a business and have never looked into your Business Rates checker, now is the time. Rates are calculated differently for different types of businesses. The purpose of this article is to provide an overview of how rates are calculated, as well as some useful ways to save money on them.

Business rates depend heavily on the location of your property – with rates also varying depending on the type of business that you run in that property and levels within those types too. For example, storage units might not be rated at all until they reach a certain size, while offices may have a lower rate than retail premises which have a lower rate than factories.

Business Rates Council (BTC) takes three main areas of data from which to calculate your Business Rates:

Property Classification Values

This refers to the property’s function and its status. This is vital for state local government services, such as rates and school funding, because it provides the basis on which funding can be calculated. The council will then use the obtained values from their Departments of State Services data system to work out the amount of rateable value (the amount of money you will have for rates) for each business location. These values are based on the following properties and their classification scales:

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Business Rates have three categories:

Duty – based on the type of business carried out in that premises

– based on the type of business carried out in that premises Capital – a rate charged for new buildings, including houses and flats that are vacant for < 4 months during their valuation year.

– a rate charged for new buildings, includes houses and flats that are vacant for < 4 months during their valuation year. Supplement – additional charge if property has different uses

For example, retail business rates will be based on the rateable value of a building that is at least 800m2 in size. For newsagents and betting shops, this would be <800m2 and >400 square metres respectively. This capital charge would apply to those above values if the property were new. Small shops may pay a higher supplement due to the low margins they often have due to the competition that they face.

 What is the difference between buildings, structures and land?

Buildings – A building constructed for commercial use. This will include office buildings and factories.

Structures – Any structure which is not a building. This might be a crane or temporary shed.

Land – The ground within the site itself, including any excess land that may have been purchased with it e.g. flat land.

If I have more than 5 properties in my area will I have to pay more?

No. The council must tabulate, or aggregate rates for all of the property locations in your business to ensure that each individual location is aggregated correctly, before calculating the rates for each property. The council can only do this if your business is operating in a separate location to your property addresses. This would include a car park or yard between your other activity and where you live. Your addresses may be on different sites, however they must be aggregated by the rate collector/s – meaning they must be physically and financially linked together.

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What will make my property more valuable?

Any improvement or extension to the property, be it a garage for your business vehicles or extending your office space.

How does the council work out my rates?

They use the following attributes for each property to calculate rates:

Property Rating Factor – This is determined by how much of each type of rating factor applies to your property. These might include factors such as whether you have disabled access, machinery on site etc.

Land Value – This is based on the land value itself, including any excess land that may have been purchased with it e.g. flat land.

Building Value – This is based on the value of the building, including any improvement or extension to it.

Note: The council will include any extra land you may have purchased with the building when determining the value of your total site.

Property Relief Current – This will look at various factors, such as if you are a small business or charity and any previous discounts you have had applied to your property.

Rateable Value – This is determined by multiplying all three values together to give an overall rateable value for each property.

What reliefs can I use?

 You can claim numerous reliefs, depending on your circumstances and what you are claiming relief for. Reliefs are a means to make sure that your rates are more manageable for the council and for you. If for example it is estimated that a business will generate more than £50,000 a year from your property, you can claim relief from this amount. Examples of reliefs are as follows:

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(i) Annual Discount – This applies if your property is used less than 9 months every year. This can reduce the rateable value of your property by 25%.

(ii) Excessive Loss – If you have suffered an excessive loss in one year, this can be claimed against the rateable value of the building.

Conclusion

Business Rates are calculated based on the amount of business income the council anticipates you will receive from your property, with this amount then multiplied by the rateable value of your property. From this amount the council will then deduct any reliefs you have applied for and may also have to pay back in previous years. This means that for any business operating out of a property, there is a need to assess your own circumstances before moving forward and settling on what rate calculation method you can use. This can be relatively straightforward as long as your business has been assessed properly and your database is kept up to date.