UK small business rates relief: eligibility and how to apply

For small businesses reeling from the financial impact of the pandemic, the October 2021 budget by the UK Chancellor of the Exchequer Rishi Sunak will have offered considerable relief. Quite literally. One of the Chancellor’s biggest fiscal flourishes was the unveiling of a 50% small business rate relief package for the retail, hospitality and leisure sector for the 2022-23 tax year.

The hope is that on top of the existing business rate relief structures in place before the pandemic, the revised rates will offer small businesses an opportunity to reduce their tax burden and accelerate recovery from significant revenue losses during 2020. Some estimates put the cost of Covid-19 to UK small businesses at up to £69 billion. At a granular level, that translated to average losses of £11,799 for small businesses after the first lockdown alone.

Based on this, a case could be made for support and assistance. Small businesses contribute 52% of the £2.2 trillion private-sector turnover in the UK and employ 60% of private sector workers. When all pubs, bars, cinemas, gyms and clubs were ordered to close on 20 March 2020 (not to reopen until 17 May at the earliest) it provided a sharp reminder that these important features of the high street landscape cannot be allowed to go under. Nevertheless, an estimated six million find themselves in a financially precarious situation, with a potential loss of 16.6 million UK jobs.

In that context, small business owners should take advantage of this most recent offer to reduce operating costs and recover revenue. Find out below what the Small Business Relief package entails, how to apply, and what other options are available for those businesses who are not eligible.

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The small business relief on offer in the UK

According to the announcement in the October 2021 budget, small businesses in the retail, hospitality, and leisure sectors can claim a 50% discount on their business rates for the 2022-23 financial year, but only up to £110,000 a year.

That upper cap has drawn a certain amount of criticism from those who say it offers limited relief for bigger high street businesses. Nevertheless, the Chancellor maintains that 90% of small businesses — including shops, restaurants, cinemas, gyms, hotels, bars, and theatres — will see a discount of at least 50%. The step represents a tax cut worth £1.7 billion and comes on top of existing small business relief, considering that planned business rate increases for 2022 were already scrapped.

In addition to the rate cuts, the assessment of rateable values on which business rates are calculated has been postponed until April 2023, after which re-evaluations will take place every three years instead of the current five.

Does my business qualify for small business rate relief?

Under the proposals of the October 2021 budget, small businesses can qualify for relief if the property’s rateable value is less than £15,000. No business rates are levied where the property value is less than £12,000. Between £12,001 and £15,000, the rate of relief operates on a (descending) sliding scale from 100% to 0%.

Prior to April 2017, 100% relief was available on properties with a rateable value of £6,000 or below, and discounts were applied on a sliding scale up to a threshold of £12,000.

Business rate relief is only available to businesses with one property. If the business has a second property, relief is still applicable on the main property for 12 months. After this period, business rate relief on the main property can only be claimed if none of the properties involved has a rateable value of over £2,899. The total rateable value of the property portfolio cannot exceed £20,000 (£28,000 in London) either.

How can I apply for the small business rates relief?

Business rates are set by the central government in England and calculated on the commercial value of the property. In England and Wales, rates are set by the Valuation Office Agency (VOA), in Scotland it is the Assessors, and in Northern Ireland, the duty falls to the Land and Property Services. Some properties are eligible for additional local council discounts (up to 80% if a property is used for charitable purposes, for example).

Business owners must contact their local council for information on eligibility criteria and how to apply, bearing in mind that local councils typically send their business rates bills in February or March.

What if I don’t qualify for small business rate relief?

If your property has a rateable value below £51,000, your business is considered to be a small business. However, the current business relief rates stop at the £15,000 threshold. For businesses who don’t qualify for small business rate relief, business rates are calculated by multiplying the rateable value of a property (the ‘hereditament’) by a multiplier. For small businesses, the multiplier is 49.1p, which was frozen for 2022-23.

There may nevertheless be other reliefs available:

Renewable energy

Businesses may be able to access ‘Targeted business rate exemptions’ related to renewable energy. These are typically available for businesses who invest in rooftop solar panels, battery storage and electric charging points. In addition, 100% relief is available for eligible low-carbon heat networks. Provisions for the above will start from the 2023-24 financial year and are set to run to 2034-35.

Renovations relief

Businesses can also apply to make property improvements from 2023 to 2028 and avoid rate increases for the next 12 months. The flip side to renovations is that they will drive up the rateable value of the commercial property.

Business rates might be an imperfect taxation vehicle in the eyes of many struggling high street businesses, but it’s hard to overlook the £25 billion a year these rates contribute to the economy. A complete overhaul of business rates is frequently mooted, but for now changes to small business rates relief represent the short-term boost that hospitality, leisure and retail were looking for.

Does your business need to pay international suppliers, overseas taxes or bills abroad? CurrencyFair allows you to send money abroad at rates up to eight times cheaper than the banks.

This information is correct as of 15 November 2021. This information is not to be relied on in making a decision with regard to an investment. We strongly recommend that you obtain independent financial advice before making any form of investment or significant financial transaction. This article is purely for general information purposes. Photo by Dan Burton on Unsplash.