How Business Rates in the UK Work: A Simple Guide for Small Businesses
Understanding business rates can feel like navigating a maze, especially if you're a small business owner or contractor juggling multiple responsibilities. Whether you rent a high street shop, run an office, or occupy a co-working space, business rates are a crucial cost to get right.
This guide breaks down the essentials of business rates in the UK. What they are, who pays them, how they’re calculated, and how to check if you qualify for any reliefs. We’ll also walk you through a real-world example using the 2025/26 figures.
What Are Business Rates? Understanding the Basics
Business rates are a local tax charged on most non-domestic properties, including:
Shops and retail units
Offices and co-working spaces
Warehouses and factories
Pubs and salons
They help fund local services like street cleaning and police, similarly to how council tax works for residential properties.
The UK government, via the Valuation Office Agency (VOA), assigns each commercial property a "rateable value" based on its estimated rental value on a fixed valuation date. Your local authority then applies a government-set multiplier to calculate the actual amount you owe.
👉 Learn more directly from gov.uk
How Is Your Business Rates Bill Calculated?
There are two key parts to your bill:
1. Rateable Value
This is assessed by the VOA based on your property’s likely annual market rent as of April 2021 (for the current cycle). For example, if your shop’s estimated rent is £20,000/year, your rateable value will be £20,000.
🔗 HighPeak.gov.uk explains how this valuation is done.
2. Business Rates Multiplier
The multiplier is a pence-per-pound rate set annually by the UK Government. For 2025/26, the multipliers are:
Standard Multiplier: 51.5p
Small Business Multiplier: 50.0p (for properties with a rateable value under £51,000)
Calculation example:
If your rateable value is £20,000 and you qualify for the small business multiplier:
£20,000 × 0.50 (50p) = £10,000 annual business rates
However, this can be reduced through relief programmes (explained below).
Who Pays Business Rates?
Business rates are usually paid by:
Occupiers of the property (whether owners or tenants)
In shared spaces, license holders, or the main leaseholder
Exceptions include:
Buildings used for agriculture, religious worship, or where only home-based businesses occupy part of the domestic property.
More details are in the Commons Library report on business rates.
Business Rates Reliefs and Exemptions for Small Businesses and Charities
Several relief programmes can reduce your costs if you meet the conditions:
🔹 Small Business Rates Relief (SBRR)
Full relief for properties with a rateable value under £12,000
Tapered relief between £12,001 and £15,000
🔹 Rural Rate Relief
For businesses in rural areas serving a small population.
🔹 Charitable Rate Relief
Charities and community amateur sports clubs can receive up to 80% mandatory relief.
🔹 Improvement Relief
The government is reviewing proposals for new business rates improvement relief, aimed at encouraging property upgrades without penalising businesses with higher tax bills (gov.uk).
A Practical Example:
Let’s say you operate a small coffee shop in Manchester with a rateable value of £15,000.
Do you qualify for relief? ✅ Yes – under £15,000 ✅ SBRR available
Here's how your bill might look:
Standard Calculation: £15,000 x 0.50p = £7,500
With SBRR (tapered): Reduced to around £3,750 (approximate)
Always confirm eligibility and exact bill with your council or your accountant.
How to Check and Challenge Your Business Rates Assessment
Think your rateable value is too high? You can:
Check your property’s rateable value
Use the VOA’s online tool: gov.uk/find-business-ratesSubmit a “Check and Challenge”
You’ll need to explain why you think the valuation is too high and provide supporting evidence (leases, floor plans, local rents).Get professional assistance
Work with experts who understand how to present a strong case and negotiate reductions.
