How do business rates operate in Wales?

06 July 2016

Article by Gareth Thomas, National Assembly for Wales Research Service

Darllenwch yr erthygl yma yn Gymraeg | View this post in Welsh

Business rates, sometimes known as non-domestic rates, are one of the major sources of local government funding, and have been fully devolved to Wales since 1 April 2015.  This blog post answers some of the most common queries that the Research Service receives about them.

Number of properties liable for business rates

Amount of Welsh Government expenditure financed by business rates

The amount of business rates that must be paid on a non-domestic property is calculated in the following way in Wales.

How business rates are calculated

The rateable value of a property is an estimate of how much it could rent for per year on the open market at a given point in time.  This is then multiplied by the ‘pence in the pound’ of the rateable value paid in business rates, known as the multiplier, to calculate the business rates liability for the property.  Any reliefs that the property is eligible for are then subtracted from the liability in the final business rates bill.

In Wales, business rates are collected by local authorities and paid into a national ‘pool’ administered by the Welsh Government. They are then redistributed to Welsh local authorities and Police and Crime Commissioners as part of the annual local government settlement and police settlement.

Who does what?

The Valuation Office Agency (VOA), a UK Government body, assesses the rateable value of all non-domestic properties in Wales and England. It is also the first point of contact if a business thinks that its bill is wrong due to the rateable value being inaccurate.

The Welsh Government sets the business rates multiplier every financial year, and determines national business rates policy including setting reliefs. The Cabinet Secretary for Finance and Local Government has responsibility for business rates policy and administration.

Local authorities collect business rates within their area, and are also able to award discretionary reliefs for businesses within their authority.

Main business rate reliefs

What help exists for small businesses to reduce their business rates bills?

The Welsh Government’s current small business rate relief scheme provides relief to eligible small businesses in the following way until 31 March 2017:

  • Small businesses with a rateable value of up to £6,000 receive 100% rate relief and pay no business rates at all; and
  • Small businesses with a rateable value of between £6,001 and £12,000 receive relief that is reduced on a taper; with the percentage of rate relief awarded decreasing by 1% for every £60 of rateable value over £6,000.

The Welsh Labour manifesto pledged to increase small business rate relief. The Cabinet Secretary for Finance and Local Government has stated that he will be considering the options for future relief over the summer.

Certain types of small business, such as post offices, registered childcare premises and some retail premises are eligible for enhanced relief.

What other reliefs are available?

The Welsh Government has run a series of business rate relief schemes for new and expanding businesses within the Welsh enterprise zones. A scheme is currently open until 30 September 2016 for the newly established Port Talbot Waterfront enterprise zone, to provide businesses with rate relief in the 2016-17 financial year.

Business premises occupied by a registered charity or community amateur sports club that are used for charitable purposes automatically qualify for 80% business rate relief, funded by the Welsh Government. Local authorities are also able to use their discretion to award additional relief to charities and sports clubs for part or all of the remaining 20% of their business rates liabilities.  Local authorities can also decide whether they wish to award up to 100% rate relief to not-for-profit organisations within their area.

Empty business premises are exempt from paying business rates for the first three months after the property becomes vacant. After this the majority of owners are liable to pay full business rates.  However, there are some types of premises with different rules, such as those with a rateable value of under £2,600, industrial premises and properties owned by charities and sports clubs.

The New Developments scheme is a temporary relief which exempts all newly built, vacant commercial property from business rates for the first 18 months following completion. Buildings must be completed between 1 October 2013 and 1 October 2016.

Local authorities are able to use their discretion to grant hardship relief of up to 100% to businesses within their area.  An authority can award hardship relief where it is satisfied that the ratepayer would sustain hardship if it did not do so, and it is reasonable for it to do so having considering the interests of council tax payers.

In addition, some types of business premises are exempt from paying business rates at all.

How will the upcoming business rates revaluation work?

Business rates revaluations usually happen every five years, and the VOA will conduct a revaluation of all non-domestic properties in Wales to come into force from April 2017, based on their rateable value as at 1 April 2015. A revaluation adjusts the rateable value of properties to reflect changes in the property market and to redistribute business rates liabilities, rather than seeking to increase revenue raised from business rates.  Some properties will see an increase in their business rates bill, some a decrease and others no change.

The VOA is currently revaluing properties across Wales. Draft rateable values are expected to be published online by the VOA on 30 September 2016, and businesses can register online with the VOA to receive an e-mailed notification when their draft valuation is available online. Revisions to draft rateable values can be made between October 2016 and March 2017, if there are factual errors.  Local authorities will then send out business rates bills for the 2017-18 financial year.  Appeals against valuations can be made from April 2017.