As with most things involving your business finances, this question doesn’t have a simple yes or no. For freelancers, business rates are a common point of confusion. Many freelance workers operate their business from their own homes, so it’s not surprising that you might be!
What are business rates?
Business rates are a type of property tax usually payable by businesses operating from a non-domestic property.
A non-domestic property is one not used as a domestic residence or living accommodation. Everyday examples include shops (retail spaces), offices, warehouses, factories, and other commercial and industrial properties.
The rise of e-commerce
Business rates as we know them today have been in place since 1990, but in recent years they have become a topic of ongoing debate. This is particularly so following the rise of e-commerce, online trading and businesses operating from people’s homes.
The shift in balance between online or remote businesses and bricks-and-mortar non-domestic properties is causing business rates to come under considerable scrutiny. But for now, it’s still something applicable businesses must adhere to.
The business rates shake-up
As part of the October 2021 budget, Chancellor Rishi Sunak revealed a shake up of the business rates system. As well as re-evaluating the rates every three years, there will also be a new type of relief for anyone investing in energy efficient tech.
Sunak also revealed a new Improvement Relief to freeze payments at the current business rate for 12 months, for those making property improvements.
When business rates don’t apply to a home-based business
Do you run your business from home? Are you wondering if you should be paying business rates? In some cases, the answer is yes, and we’ll take a closer look at those circumstances in just a moment.
However, for many home-based businesses, business rates aren’t something you need to concern yourself with. Current guidance says that you are not normally required to pay business rates if your home-based business:
- Only uses a small part of your domestic property (home) to operate from.
- Sells goods online and dispatches them through the post.
So, for example, if you’re a freelance copywriter who works from home, but you only use a small part of it for business-related activities, you won’t need to pay business rates. This includes if you work from a home office.
As another example: if you’re a jewellery-maker who works from home, selling your goods online and shipping them via post, you won’t need to worry about business rates either.
This is because the domestic dwelling you work from is predominantly used for residential purposes and not solely, or as a majority, for business-related activities.
Now, let’s provide some clarification around when home-based business owners are expected to pay business rates, and how you can go about registering and complying in such cases.
When does a home-based business need to pay business rates?
As we mentioned above, there are instances where a home-based business will need to register to pay business rates. Current guidance says that a home business will be required to pay business rates if and when:
- The property is split between part-business, part-residential.
- You sell goods or services to people who come to your property to receive them.
- You employ staff who work from your property as a base.
- You’ve modified your home to meet the demands of business-based activities.
Common examples of all of the above are:
- When the business owner lives above the commercial part of the property, e.g. somebody who lives above a takeaway restaurant or café that belongs to them.
- A nail technician who has clients coming to their home for appointments.
- A freelance marketing consultant who employs a marketing team to work from their property
- A personal trainer who has converted their garage into a home gym where they train clients.
It’s worth noting here that if your business falls under any of the categories above, or if you’re informed that you’ll need to pay business rates, you will also be required to pay Council Tax alongside this.
Council Tax is separate from business rates and is therefore classified as an independent payment.
How to register to pay business rates
If you think you might need to pay business rates, you can contact the Valuation Office Agency (VOA) to find out.
If you are eligible, you will be sent a business rates bill by your local council in either February or March of each year. The amount on this bill will cover the business rates you owe for the coming tax year. It can usually be split into instalments – just like your Council Tax bill.
The amount you pay depends on the rateable value of the property, which is determined by the VOA. If you think the VOA has your rates wrong, you are within your rights to appeal.
Your business rates will be paid to your local council, and can typically be paid through all of the standard methods: over the phone, direct debit, Post Office, at the bank, or by BACS.
If you are included in those who are required to pay business rates, there is a number of rate relief initiatives out there designed to help. These are sometimes automated, but often will require you to go through an application process.
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