Business rates relief for small businesses
Businesses and other occupiers of non-domestic properties pay non-domestic rates, known as business rates, to contribute to the cost of local authority services. Uniform, nationally set, non-domestic rates were introduced by the Local Government Finance Act 1988 which also replaced the domestic rates with the community charge. The Act provided for the Government to set a national rate each year in respect of non-domestic property – known as the ‘multiplier’. The multiplier, when applied to the rateable value of a premise, gives the basic rates bill payable. Changes in the multiplier are linked to changes in the Retail Price Index. Local authorities neither set rates nor retain the revenues derived from them. Billing authorities collect the rates and pay the revenues to a central pool. It is then redistributed by central government to local authorities as part of the annual grant settlement.
The basis of the valuation system for the business rate is an assessment of a property’s annual rental value – that is, the rent at which the property could be let in a free and open market at the specific valuation date. Rateable values are reviewed every five years. Rateable values were last updated on 1 April 2010 based on market rents at 1 April 2008. Factors such as the size of the premises and how they are used are taken into account in determining rateable value. If a property has been changed since the last valuation, for example extended or otherwise modified, it can be reassessed. Rateable value is defined in Schedule 6 to the Local Government Finance Act 1988 as: an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to be let from year to year on these three assumptions –
- the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
- the second assumption is that immediately before the tenancy begins the
- hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic;
- the third assumption is that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.
Some business properties are exempt from valuation, including agricultural land and buildings, religious premises, and properties used by disabled people. Other properties are subject to a relief or discount from the rate payment. The most significant of these is the small business rate relief scheme (SBRR) which operates in England, with comparable schemes in operation in Scotland and Wales. Some relief is also available for properties where the ratepayer is a charity, certain rural shops, former agricultural premises, unoccupied properties, and in cases where the ratepayer would suffer real hardship.