Most non-domestic property will be liable for business rates, which essentially serve as an occupier’s tax. Consequently, if a business operates from land or buildings then they will have a liability to pay business rates for the area they occupy. Conversely, if a property is empty, then liability for rates will rest with whomever is entitled to possession.
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The Valuation Office Agency (VOA) works out the Rateable Value of commercial properties by estimating their rental value at a statutory valuation date. This means that rates are normally calculated according to historic rental values in the locality of a premises, which means occupiers may not be paying rates based on prevailing market values.
There may be factors specific to certain businesses which can affect the valuation, so it is always worth obtaining professional advice as to whether the VOA’s estimate is correct. Business rates are also calculated differently depending on whether the property is located in England and Wales, Scotland or Northern Ireland.
The business rates that are actually payable are based upon the Rateable Value and a multiplier which is adjusted annually.
There may also be further adjustments made to the rates payable depending on the size of the occupying business. If there has been a recent revaluation, the rates may be adjusted to lessen the impact of changes in Rateable Values.
It is the local authority for the location of a property that will issue the rate demand. Once tenants understand their Rateable Value, they can estimate the business rates payable by using the multipliers published on the government website.
Tenants should be wary of inclusive rents. If the landlord fails to pay business rates on behalf of the tenant, unfortunately it is the tenant who is liable to the local authority.
In certain circumstances, the ratepayer is entitled to a discount on the business rates they pay:
Business rates are not payable on buildings which are empty for a period of three months, however there are a number of scenarios when this period of empty rate relief can be extended. For example, charities may qualify for further exemption in certain circumstances.
Business rates are not payable on properties with a rateable value of less than £12,000 and discounts are available if the rateable value is listed at less than £15,000.
Charitable businesses can apply for 80% rates relief. Not-for-profit organisations can also obtain rates relief, although this is discretionary in nature and decided locally by each council.
Some business may be located in a designated Enterprise Zone, which may allow it to qualify for rates relief of up to 100%. The Enterprise Zones website will confirm whether the property is positioned within an area where this type of rates relief is possible.
There may be other forms of rates relief and grants which apply to certain businesses, particularly during the current pandemic. It is recommended that tenants engage with a rating specialist at an early stage who will be able to advise them further.
There are often grounds to challenge the level of rates that a business must pay. This may be by claiming relief or challenging the VO’s estimate of rateable value.
From 1 April 2017, the VO introduced a new system of challenging business rates, known as the Check, Challenge, Appeal process. It requires the ratepayer to register online, even if they wish to appoint an agent to deal with matters for them. If you a tenant does decide to appoint an agent, they will need their unique reference code.
Before tenants can ‘Challenge’ the rates they pay, the ratepayer or its agent must complete the ‘Check’ process.
Challenging the rates liability successfully requires the ratepayer to prove the VO is wrong in its assessment of the rateable value. Unsurprisingly, this requires a good deal of evidence and supporting information. Tenants should be aware that they may find themselves liable for a £500 penalty for any incorrect information supplied at this stage.