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How will changes to business rates affect my business?

What do recent changes to business rates mean for your business—and do the changes go far enough to help struggling businesses? Here we take a look at the details of Rishi Sunak's recent announcement.

Last week, in his 2021 budget, Rishi Sunak announced changes to business rates. He set out a temporary 50% cut in rates for some businesses from April 2022. It follows a 66% Covid-related reduction in rates for some businesses up to April 2021. He also announced that planned business rates increases will be scrapped in 2022-23.

These changes will save some businesses money, but they were not as far-reaching as many business leaders hoped.

What are the changes in business rates?

In the recent 2021 budget, Rishi Sunak announced several changes to business rates. Here they are in summary:

  • There will be a temporary cut of 50% in business rates for eligible businesses up to a maximum of £110,000. This discount will be available during the 2022-23 tax year for retail, hospitality and leisure businesses. The Chancellor is due to provide more detail on which businesses are eligible in due course.
  • Business rates won’t go up in 2022-23 as planned—the business rates multiplier won’t increase.
  • Revaluations of rental value will move from every five years to every three years. This could save businesses money because high street property values are falling in many areas.
  • From 2023 business will pay no extra business rates on property improvements for 12 months.
  • There will be a new green investment relief to encourage businesses to invest in solar panels and other green technology.

How will the changes affect my business?

If your business operates in the retail, hospitality and leisure sector then you could save 50% of your business rates in the 2022-23 tax year (detailed eligibility rules are still to follow). This reduction follows the current 66% reduction in business rates for business in the retail, hospitality and leisure sector, which ends in April 2022.

Example

For example if you own a restaurant with a rateable value of £100,000, and you are eligible for a business rates reduction, then your business rates will be as follows:

Tax yearReductionCalculationBusiness Rates Amount Owed
2021-2266%34% of £51,200£17,408
2022-2350%50% of £51,200£25,600
2023-24^none100% of £51,200£51,200

^Full business rates payable, assuming business rates are frozen again.

If you own a large business or your business operates outside the retail, hospitality and leisure sector then you won’t see a big change in your business rates. Many businesses won’t be eligible for the 50% business rate cut. And reduction is capped at £110,000 so it may not provide much help if you have a business property with a large rental value. A single department store can pay as much as £1 million in business rates.

Are the changes enough to help businesses

These changes will cost the government around £4.6bn, but many believe they don’t go far enough. Many business leaders are calling for widespread reform of the business rates system. They argue that it is out of date as business rates are high and overly complicated compared to much of Europe. CBI director general Tony Danker said that

"the government missed the opportunity to truly reform a business rates system that diminishes Britain's high streets and factories".

In contrast to a complete overhaul, the changes to business rates announced in the 2021 budget are small. They will only provide temporary relief to struggling businesses and will not help struggling high street retailers in the long run.

Also, the changes provide minimal help to businesses outside the retail, hospitality and leisure sector. For example, a business with a property rental value of £100,000, that isn’t eligible for a rates reduction, will only save £300 per year from the freezing of business rates. (They will pay £51,200 rather than £51,500).

How to calculate business rates

Business rates are based on the rateable value of your property (the rental value on 1 April 2015,estimated by the valuation office agency). This rateable value is multiplied by the correct “multiplier” (an amount set by the UK government).

For example, if you rent a property in England with a rateable value of £60,000 then you will currently pay business rates of £30,720 in 2021-22 (£60,000 x 0.512). This is the full amount of business rates and may be reduced if you are eligible for any business rate reliefs.

Business rate relief is available to some businesses. For example, if you run a small business, charity or a business in enterprise zones then you may be able to claim a reduction in business rates.

Will business rates change in Scotland, Wales and Northern Ireland?

Business rates in Scotland, Wales and Northern Ireland are set separately to England. However, devolved nations often decide to mirror tax changes in England. Leaders may therefore choose to follow the 2021 budget changes.

Alice Guy

Alice Guy is a Suffolk-based business and personal finance writer. She trained with KPMG in London as a Chartered Accountant before working as a business analyst for Tesco Plc. Alice has personal experience surviving on a tight budget when she took time out to care for her young family. She loves to write about business finance, saving and investing—all the money stuff we were never taught at school.

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