Business rates are the commercial equivalent of council tax, and apply to all commercial property including retail, office and industrial. Qualifying as “Furnished Holiday Lets”, serviced accommodation is eligible to pay business rates rather than council tax. As a widely misunderstood area, we look at how business rates work and how to minimise your business rates bill.
Although business rates are technically mandatory for Furnished Holiday Lets, the VOA only become aware you are eligible for business rates once you inform them. In order to register for business rates, you need to inform the Valuation Office Agency (VOA), and fill in the form that they send you.
If business rates are significantly more expensive than council tax, you may decide not to inform the VOA and remain paying council tax. You should be aware that this is not technically allowed, and the VOA could theoretically pursue you for any financial difference in arrears – however we are not aware of any cases of this happening.
One of the biggest myths around business rates is that you must change your planning use class to C1 in order to register for business rates. For a start, C1 is not normally the correct use class for serviced accommodation – see our planning episode for more detailed information – but more importantly in this case, business rates are not linked to planning use class.
While Council Tax bands are explicit in the amount payable (e.g. Council Tax Band A – £1,198.64), business rates work slightly differently. Each premises has a “rateable value”, which is multiplied by the “multiplier” to calculate the amount payable. The rateable value is specific to your property, while the multiplier is updated annually and applies to all properties.
There are two multipliers that can be used – the small business multiplier, for rateable values below £51,000, and the standard multiplier. The values for the tax year 2017-2018 (outside Wales and the City of London, which have different values) are 46.6% for the small business multiplier and 47.9% for the standard multiplier.
For example, if the rateable value for your property is £1,000, you would multiple it by the small business multiplier of 46.6% to calculate the total payabable annually of £466.
Every few years, the rateable value of properties is reassessed to reflect changes in the property value. In 2017, the revaluations were released and with seven years since the last valuations, there were some significant changes. Some areas of the North have dropped slightly, but the main impact was in the South (and particularly London) where many rateable values have doubled or even tripled. This means that in most areas of the South, business rates are now significantly more expensive than council tax.
In order to soften the blow to businesses, a “transitional relief” has been applied. This means that businesses who were paying business rates prior to the 2017 ratings coming into force will see their bill gradually rising over a few years before the full impact is felt. For new applications however, there is no transitional relief and so the full amount will be payable.
ESTIMATING YOUR RATEABLE VALUE
The rateable value of Furnished Holiday Lets is straightforward to calculate – the number of Single Bed Spaces (SBS) multiplied by the Rateable Value per Unit (RVU).
For example, a two bedroom flat with two double beds would be 4 SBS. If the RVU was £1100, the total rateable value would be £4,400. You would then times this by the multiplier to find the amount payable.
The number of SBS is rather self-explanatory, in that a single bed will count as 1 and a double bed will count as 2. Sofa beds will be counted as 1 SBS, so you might not want these in place for your initial application!
The RVU varies by area, and can you find out for your area by doing the following:-
1) Go to https://www.tax.service.gov.uk/view-my-valuation/search
2) Click on the “Advanced” tab
3) Select “Local Authority” and choose your local authority
4) Click on “Show additional search filters”
5) Select the “Special category code” of “131 – Holiday Homes (Self Catering)”
6) Click on “Search”, and it will show you a list of serviced accommodation in your area that are registered for business rates
This list of properties shows not just the property address, but also the number of SBS in the column “Total area (m²/unit)”, and most important the RVU in the column “Price per m²/unit”.
It’s quite likely that there is a range of RVU’s, but typically 50%+ of the properties will have the same RVU. This will be the “standard” value for the area, which the valuer can occasionally move up or down depending on specific properties. You can use this value relatively safely when estimating your rateable value – remember, it’s SBS multiplied by RVU.
SMALL BUSINESS RATES RELIEF
The most significant relief available for business rates is small business rates relief. Small business rates relief allows you to claim 100% relief – e.g. you pay nothing – for properties with a rateable value of up to £15,000, and a scaling 100% to 0% relief for properties with a rateable value between £15,000 and £18,000.
How the scaling relief works is that for a value of £16,500 – half way between £15,000 and £18,000 – you would receive 50% relief. The amount payable for £16,500 would be £16,500 multiplied by the small business rates multiplier of 46.6%, with a result of £7,689 per year. With the 50% relief, this would drop to £3,844.50 per year.
There are strict eligibility around who can claim small business rates relief. Unfortunately, in most cases it is limited to businesses and individuals operating a single property. When a second property is added, the small business rates relief is lost after 12 months.
The criteria for retaining your small business rates relief with multiple properties are that:
A) None of the properties rateable values are above £2899
B) The total rateable value is less than £20,000 (£28,000 in London)
Should you fit both of the above criteria, this would allow you to retain small business rates relief on your first property. Despite clear guidance, this tends to be inconsistently adhered to by local councils and some refuse to allow it.
To register for small business rates relief, you just need to notify your council and they will send you over a form to complete.
Business rates are not linked in any way to planning use class. It is very important to understand that business rates are not always cheaper than council tax, and to estimate your business rates bill prior to registering. If you are eligible for small business rates relief however, you could end up paying nothing!