As we head into the new financial year, we are seeing more government changes for businesses. One issue for our business customers, here at Boxpod, and one that we have heard a lot about recently in the news, is business rates. They can have a great impact on businesses in the UK and are a cost that needs to be considered when you are buying or renting a commercial unit.
What are Business Rates?
In the UK, business rates are a tax that is put onto a non-domestic property. They are one of the oldest taxes in the country, tracking back to 1601 – with the introduction of the Poor Law – which is a set of laws that were intended to raise money to help people living in poverty.
Today, business rates are generally calculated using the rental value of the commercial unit known as the ‘rateable value’, but there is also relief available for some businesses. This is the property occupant’s contribution to the local authority, similar to the council tax that is paid by domestic residents.
The business rates are set through the Valuation Office part of HMRC, which has a database of the rentable value of all of the properties and calculates the amount for business rates from that. The business rates are different in Scotland and Northern Ireland to those in England.
Generally speaking, the business rates are paid by the business that is occupying the commercial unit – whether that is an owner-occupier or a tenant. It is important, if you are a tenant, that you check what the deal is with business rates when you rent the unit to avoid any unexpected costs. Normally, the tenant will pay the business rates separately, but it is sometimes the case that they are included in the rental price of the unit.
It is also important for landlords to bear in mind, that even if the commercial unit is empty, business rates still need to be paid. You should be aware, however, that there is sometimes empty property relief available, with regulations differing according to the type of commercial unit that is empty.
Reforms in Business Rates
Business rates have gone through a number of changes in the last few years. Help was given to many businesses through business rate relief over the COVID-19 pandemic, for example, and with the growth of online business, the high street has taken a bit of a hammering, and the government has also tried to make changes in the rates to try to help them with that.
The government has announced its new business rates reforms that come into play in April, and here we will take a look at what they are and what they could mean to businesses.
Reduction in Relief
In the past, the hospitality, retail, and leisure sectors have enjoyed a business rates relief of 75% – subject to a cap of £110,000 (per business). The new changes are reducing the relief for the same sectors to just 40% for businesses with a ratable value of under £51,000 – whilst keeping the same cap. This means that many businesses will be paying a much higher amount for their business rates – almost double. This will have a significant impact on businesses, especially SMEs.
Cut in Business Rates for Hospitality, Retail, and Leisure from 2026
New legislation is setting in place the introduction of a permanent cut in business rates for hospitality, retail, and leisure businesses from 2026. The intention is to give longer-term support for businesses on the high street as they come up against the growth of online business.
Higher rates will be added to the top 1% of the high-value commercial units, such as the enormous warehouses used by huge online businesses to help pay for these future cuts.
Small Business Multiplier Freeze
The Small Business Multiplier is the method used to calculate the business rates. The rateable value (annual rentable amount) is currently multiplied by 0.491p to give you your business rates amount.
So, for example, if your rateable value is £10,000, the rate would be:
£10,000 x 0.491 = £4910.00
The government has announced that this small business multiplier that is used to calculate the business rates amount will be frozen at 49.9p for commercial units with a ratable value of under £51,000. They are hoping that this will cover over a million commercial units.
It is important to remember that business rates relief is still available for businesses, and you should look into what is available to your business.
The main idea behind these business rates changes is to put more balance between the (often smaller) businesses on the high street – often in hospitality, retail, and leisure sectors, and the massive multinational businesses that operate online, and make use of enormous storage warehouses.
Although in the short-term, this looks like a difficult patch for smaller businesses especially, the hope that it will become fairer and more supportive in the future.
Checking the business rates on a property is essential before you rent a commercial unit, whether it is a retail unit, office space, or warehouse to avoid any nasty surprises. Landlords should also be aware of the business rates that their commercial unit warrants and look at what help is available to them should the unit be left empty for any amount of time.
Here at Boxpod, we have a range of different commercial units for your perusal. If you are a business looking to find your next home, or a commercial unit landlord with one to fill, have a look at our website to see how we can help!