Business rates have been in the press a great deal lately as various retailers, who have had to close shops, have blamed them for their problems. Since the financial crisis, rents have risen significantly in many areas so given business rates are based on rents. This has meant businesses are facing a double increase in costs.
How are business rates calculated and what do you pay?
Business rates are levied as a percentage of a theoretical rent that the premises could command in the open market, if it was rented out on a yearly basis. So if the rateable value of the property is £50,000 per year you will pay in taxes at 47.9% of this value. This rate of 47.9% is known as the multiplier. It is actually a bit more complicated than that. If you want to find out more, visit the Rating Valuation page of the Government website.
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. There have been some concessions in that very small businesses i.e. those with a rateable value of less than £12,000 will not have to pay business rates at all, with tapered relief being available for those with properties valued at up to £15,000.
The higher rate threshold will increase from £18,000 to £51,000. For example, you may be eligible for the Business Rate Relief scheme - find out more on the government website here.
If you are struggling to pay your business rates, what can you do?
It is possible to get your rateable value challenged if it is incorrect. This is normally 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. Be aware that any appeal may actually mean that the rateable value is increased.
If debt is piling up and you’re struggling to keep up with business rates, you should consider using a company voluntary arrangement (CVA). This formal deal 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 is classed as an unsecured creditor in a CVA, so a proportion of business rate debt can be written off.
Business rates can be used as a negotiating tactic with the Landlord if your business is struggling. Why is that? Well, legislation introduced in 2010 means that Landlords will have to start paying full business rates on their empty properties where it used to be only half and that was after 3-6 months of the tenant leaving. This means that a landlord faces paying the business rates if he doesn't agree to a rent concession forcing the tenant to leave.
See here for more information on secured and unsecured creditors in insolvent situations.
If you can’t pay business rates, VAT or PAYE, see our advice pages in the HMRC and VAT section of the website.
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.