Business rates are a significant overhead that can make up around 50% of your total rent on commercial property [1]. However, they also represent one area of a company's tax burden where legitimate savings can be made.
In fact, there are several steps you can take to reduce your business rates, so read on to learn more.
How to calculate business rates
Business rates are based on your company premises' rateable value, which is an estimate of what it would cost to rent a property for a year.
In the UK, the Valuation Office Agency (VOA) is responsible for setting the rateable value of business properties in England and Wales, with devolved bodies responsible in Scotland and Northern Ireland. If you don't know your rateable value or are considering moving or expanding to new premises, you can easily use an online calculator that uses location data to estimate this figure.
Once you have your rateable value, to calculate the property's business rate you simply multiply it by your multiplier. While multipliers are reviewed on a yearly basis, they have remained unchanged in England and Wales since 2020: until at least the end of the 2023/24 tax year, the "standard" multiplier is 51.2p on the pound for properties with rateable values of £51,000 and above, while the "small business" multiplier is 49.9p for properties with rateable values below £51,000. So to work out your business rates, you would need to do one of the two following calculations, depending on your property's rateable value [2]:
Business rates with standard multiplier = rateable value x 0.512
Business rates with small business multiplier = rateable value x 0.499
How to reduce business rates
Once you know your business rates, there are six main ways you can try to reduce them:
1. Challenge your property’s rateable value
If you have fair reason to believe that your property’s rateable value is too high, you have the legal right to challenge it. If a similar local property close to yours has recently successfully challenged its business rates, this may increase your chances of successfully doing so. Engaging with other similar local businesses can be a useful way to make sure you're all paying a similar rate.
2. Seek help if you experience a change in operational circumstances
The success of a business depends on a myriad of factors, but for publicly operating businesses, location and environment can be everything.
Imagine you run a local shoe shop on the main high street of a busy town. One month, the council have to perform maintenance to the road and pavements directly outside your shop, taking up lots of space with building materials and obscuring your products. In this situation, you might be able to secure a temporary reduction in your business rates while this is going on.
3. Shop around for a property with a low rateable value
If the rateable value of your property in England or Wales is less than £12,000 and it is the only property you use for your business, you can claim small business rate relief, which means you will be exempt from business rates. Those properties with a rateable value of between £12,001 and £15,000 are eligible for small business rates relief on a sliding scale from 100% to 0% [2]. Similar small business rates relief may also be offered in Scotland and Northern Ireland, so contact your local council for more details about this.
4. Limit the size of your business premises
If you downsize the property your business operates from, this may help you reduce your business rates, says Mike Smith, Director at Business Expert. “Rather than having a dedicated office, consider using co-working spaces," says Smith.
"This can substantially lower overheads, including business rates. Similarly, allowing your employees to work from home, either full or part-time, can reduce the need for office space and thus reduce business rates.”
You do not have to pay business rates for home working if only a small part of the home is used for the business, such as a home office or if you sell goods by post. You may need to pay business rates if you work from home if your property is partly used for business and part for residential purposes, such as living above your shop. Business rates may also be payable if you sell goods or services to people who visit your home, you employ other people to work at your home or if you have made alterations to your home to accommodate your business, such as converting a garage to a hairdressing salon.
Smith adds that home working has actually made his business more agile and contributed to better business rates. Most of his marketing and web development teams now work remotely, some are even based in other countries.
5. See if your business qualifies for a discount or exemption
The type of business you run, its location and its industry may qualify for business rate relief, discounts or even exemption. It's important to do your research to make sure your business is only paying what it should be. Many business owners are completely unaware their type of business qualifies for relief.
For example, if your property is based in England or Wales, you may qualify for retail, hospitality and leisure relief if your business premises is mainly being used as a shop, restaurant, cafe, bar or pub, cinema or music venue, or a leisure business such as a gym, spa or hotel. In England, for the year 1 April 2023 to 31 March 2024, for example, you could get up to 75% off your business rates, up to £110,000 per business.
Some business properties, such as some farm buildings and those used to care for people with disabilities, are exempt from business rates altogether.
Unfortunately, not every business will be eligible for business rates reliefs or exemptions. Or, you could find yourself waiting weeks or months for a decision by your local council on whether your business qualifies for relief. It's times like these that additional credit can be really useful.
With an American Express® Business Gold Card you could get up to 54 days to clear your card balance, giving you greater flexibility in your cash flow1. And for every eligible £1 you spend in your business, you earn 1 Membership Rewards® point, which can be spent with hundreds of retailers or used as credits towards paying your bill2.
6. Consider relocating to an enterprise zone or freeport
In England, enterprise zones are ‘geographically defined areas, hosted by Local Enterprise Partnerships in which commercial and industrial businesses can receive incentives to set up or expand’ [3]. If you launch or relocate your business to a designated Enterprise Zone, you could qualify for business rates relief. This differs between local councils, so check with your local council to see the terms of these offers.
Freeports are designated areas around the UK close to shipping ports and airports. If you set up your business in a freeport or relocate it to one, you could qualify for business rates relief. This differs between local authorities, so check with your council to learn the terms of these offers.
Consult with an expert or specialist
Many business owners may struggle to have specific oversight of every single part of their business, so when it comes to reducing business rates “it's always a good idea to seek the advice of professionals, such as tax consultants or solicitors," says Smith.
"They will be up to date with all current legislation, reliefs and incentives and they can advise on the best strategies for your specific situation."
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
2. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
Sources:
[1] UK Government, Estimate your business rates
[2] UK Government, Small business rate relief
[3] House of Commons Library, Enterprise Zones, 2023
