If you can’t pay your business rates it may be because you need to get extra reliefs from your local council or even challenge the amount that you have to pay. As such, it is worth understanding what they are and how they are calculated.
Note: The business rates relief of 75% for hospitality, retail and leisure is due to expire in March 2024.
How are business rates calculated and what do you pay?
Business rates are taxes charged on most non-domestic properties, so for commercial purposes rather than residential i.e., shops, pubs, factories, holiday rental homes. Business rates are set as a percentage of a predicted rent that the premises could be worth in the open market, if it was rented out on a yearly basis. This is variable and based on the assessment of each business, comprising multiple factors. This explains why properties located in more desirable places i.e. a busy high street, attract higher business rates.
So, if the rateable value of the property is £50,000 per year you will pay 47.9% of this value (the multiplier) in taxes.
Be aware that the rateable value is not the amount you pay, it just assists in formation of the calculation of the exact rate/amount to pay. Your local council will issue a business rates bill each year (normally February/March time) for the following tax year.
For more guidance on this you can visit the Rating Valuation page of the Government website.
Can my business rate value be challenged?
It is possible to challenge your rateable value if it is incorrect. However, this is only advisable if the actual property has changed in its layout or has been impacted by other external factors such as infrastructure changes or access. Ultimately, there must be a valid reason to support your appeal.
It is advised for you to research thoroughly before contesting, especially since an appeal could work in the outcome not expected, with the rateable value increasing. So do make sure to look for the rates of similar properties in the area (here) and compare – bearing in mind the varying factors which can contribute to differences.
If you are struggling to pay your business rates, what can you do?
Currently many retailers and small businesses are facing the prospect that they will not be able to pay the business rates to their local council, often forcing them to shut up shops.
However, this does not always need to be the case. Options are available if you are struggling to pay.
Firstly, it should also be noted that there are business rate relief schemes; check if you are eligible as this could work in your favour.
For those not meeting the relief scheme criteria, if you are having difficulty with payments, the first thing to do should be to contact your local council. Of course, it is never easy to admit the struggle to pay, but it is better to be honest that not, especially since 2010, when legislation meant that landlords must pay the full business rate for empty properties. Therefore, if they do not agree to work something out to keep the tenant in, then they will be left with the bill if the long run. So, if you discuss first, some sort of agreement may be settled, outlining a payment plan going forward, in your favour.
A company voluntary arrangement (CVA) is therefore an option. This is a formal deal which allows up to 60% of unsecured debt to be written off so you have substantially less to pay back in a debt repayment plan. The local council lists as an unsecured creditor in a CVA, so a proportion of business rate debt can actually be written off.
Alternate sources of finance should be considered since new funding could free up cash flow and allow you to settle some financial commitments. See various options here.
A creditors voluntary liquidation (CVL) may be an option you resort to – this is when the company director decides to liquidate the insolvent business.
And what happens if I do not pay?
Since business rates are run by local councils, they have the power to implement measures if payments are late or not paid at all. This involves:
- Reminder letter (giving 7 days to pay)
- Issuing a summons (the council inform you their attention to apply for a liability order)
- Liability order goes ahead
- Bailiff action can commence
- Insolvency proceedings
Just make sure to communicate with licensed insolvency practitioners like ourselves, before taking any action as we can assist with your best options and help you avoid any unnecessary consequences.
If you can’t pay business rates, VAT or PAYE, see our advice pages in the HMRC and VAT section of the website.