What Are Business Rates?
Business rates are a tax on the occupation of non-domestic property. If you trade from a shop, an office, a pub, a factory, a warehouse, a salon or a storage unit, you almost certainly pay them. They are the commercial equivalent of council tax, they are collected by your local council, and they are formally called non-domestic rates.
The tax is charged on the property, not on the business. That single fact explains most of what people find unfair about it. Business rates take no account of your turnover, your margin or whether you made a profit at all. A café that lost money last year and the one next door that had its best year ever pay the same bill if they occupy identical premises. Every other significant business tax in the UK is charged on profit, income or added value. This one is charged on floor space.
For a lot of small businesses, rates are the second largest fixed cost after rent, and they behave in exactly the same way: they arrive whether you trade or not.
How a Business Rates Bill Is Calculated
The calculation is genuinely simple. Everything complicated about business rates happens around the edges of it.
Rateable value × multiplier = your gross bill, then reliefs come off.
The rateable value is the Valuation Office Agency's estimate of the annual open market rent your property could have been let for on a set date. It is not what you actually pay in rent, and it is not what the property is worth to buy. It is a professional estimate of rental value at a fixed point in time, which is why your rateable value can rise in a year when your actual rent has not moved at all.
The multiplier is a number of pence in the pound set by central government. Multiply your rateable value by it and you get the bill before reliefs.
So a shop with a rateable value of £20,000 and a multiplier of 43.2p has a gross bill of £8,640 for the year, usually payable in ten monthly instalments.
The reliefs are where most businesses find their money, and where most of them leave it on the table.
What Changed on 1 April 2026
Two significant things happened on the same day, which is why 2026 has been so confusing. The property values were all updated, and the rules for turning those values into a bill were rewritten.
The 2026 revaluation
The VOA revalues every commercial property in England and Wales every three years. The new list took effect on 1 April 2026 and is based on rental values as at 1 April 2024. That two-year lag is deliberate, and it is the reason valuations often feel out of date on the day they arrive.
The redistribution was severe and very uneven. Total rateable value in England rose by around 10.5 percent to roughly £79.3 billion, but the average conceals the story:
- Retail rateable values fell by about 1.8 percent
- Offices rose by about 8.7 percent
- Industrial and logistics rose by about 28.6 percent
Distribution warehousing had a very strong 2021 to 2024. The rating system caught up with it all at once.
The five multipliers
England used to have two multipliers. From April 2026 it has five. This was announced at the Autumn Budget on 26 November 2025 and is permanent, not a temporary support scheme.
| Multiplier | 2026/27 rate | Applies to |
|---|---|---|
| Small business RHL | 38.2p | Retail, hospitality and leisure, RV under £51,000 |
| Small business | 43.2p | Everything else, RV under £51,000 |
| Standard RHL | 43.0p | Retail, hospitality and leisure, RV £51,000 to £499,999 |
| Standard | 48.0p | Everything else, RV £51,000 to £499,999 |
| High value | 50.8p | Any property, RV £500,000 and above |
RHL stands for retail, hospitality and leisure. The two RHL multipliers sit exactly 5p below their equivalents, and the government has committed to keeping that gap. Around 750,000 properties qualify.
Qualifying means the property is wholly or mainly used to serve visiting members of the public: shops, restaurants, cafés, pubs, hotels, gyms, cinemas, theatres. Financial services, professional services, medical services, betting shops, car parks, online fulfilment warehouses and schools are specifically excluded, so a solicitor's office on a high street pays the ordinary multiplier while the sandwich shop below it does not.
The discount is funded by the high value multiplier, which applies to just over 21,000 properties out of a rating list of about 2.01 million. That is roughly one property in a hundred paying for the other ninety-nine. Around 1,900 large distribution warehouses will contribute an extra £270 million over three years, which is close to £47,000 a year each on average.
One point that catches people out: the £500,000 threshold overrides the RHL discount entirely. A large hotel or a flagship department store with a rateable value above £500,000 pays 50.8p like everyone else.
The 1p supplement
There is also a 1p supplement added to the multiplier for one year only, from 1 April 2026, payable by any ratepayer who is not receiving transitional relief or supporting small business relief. On a £20,000 rateable value that is £200. It funds the protection given to businesses facing the largest increases. The multiplier figures in the table above already include it.
What the Changes Actually Do to a Real Bill
Here is where the headlines and the invoices diverge, and it is worth working through properly.
Throughout 2025/26, retail, hospitality and leisure businesses in England received 40 percent relief on their bills, capped at £110,000 per business. That scheme ended on 31 March 2026 and was replaced by the permanently lower multipliers.
Take a café with a rateable value of £30,000 that did not change at the revaluation.
- 2025/26: £30,000 × 49.9p = £14,970, less 40 percent relief, giving a bill of £8,982
- 2026/27: £30,000 × 38.2p = £11,460
That is £2,478 more, an increase of about 27.6 percent, in the first year of what was announced as a permanent tax cut for the high street.
The arithmetic is not specific to that café. Any RHL business that received the full 40 percent relief last year and whose rateable value did not move sees an increase of about 27.6 percent below the £51,000 threshold, and about 29.1 percent above it. A pub with a rateable value of £60,000 goes from £19,980 to £25,800.
The government's own impact analysis supports this reading. It estimates the RHL multipliers are worth around £210 million to more than 35,000 pubs across three years, which averages roughly £2,000 per pub per year. The 40 percent relief that pub lost was worth £5,988 on a £30,000 rateable value in a single year. A permanent discount worth £2,000 a year has replaced a temporary one worth three times as much.
Transitional Relief and Supporting Small Business
Two schemes soften the first year, and both are applied automatically by your council. Neither needs an application.
Transitional relief caps how much your bill can rise as a result of the revaluation. It runs for three years and the caps loosen each year.
| Rateable value | 2026/27 | 2027/28 | 2028/29 |
|---|---|---|---|
| Up to £20,000 | 5% | 10% plus inflation | 25% plus inflation |
| £20,001 to £100,000 | 15% | 25% plus inflation | 40% plus inflation |
| Over £100,000 | 30% | 25% plus inflation | 25% plus inflation |
Supporting small business relief covers ratepayers whose bill rose at the revaluation and who lost some or all of their small business rate relief, rural rate relief, the 40 percent RHL relief, or the 2023 supporting small business scheme. Their increase is capped at the higher of £800 or the relevant transitional cap.
Read those caps carefully, because the word doing the work is transitional. These schemes phase an increase in. They do not cancel it. A business protected down to a 5 percent rise in 2026/27 is looking at 10 percent plus inflation the year after and 25 percent plus inflation the year after that, arriving at the full liability by 2029. The relief buys three years to adjust, and it is worth putting the eventual number into your forecasts now rather than discovering it in 2029.
Small Business Rate Relief
This is the relief that matters most to the businesses we act for, and the one most often missed.
- Rateable value of £12,000 or less: 100 percent relief, so no bill at all
- Rateable value £12,001 to £15,000: relief tapers from 100 percent down to nothing
- Rateable value under £51,000: you get the small business multiplier even if you get no actual relief
The taper is a straight line. At £13,500 you get 50 percent off. At £14,000 you get a third off.
You generally need to occupy only one property. If you take on a second, you keep the relief on your main property for a transitional period, and that period was extended at the Autumn Budget 2025: 12 months if you took the second property before 27 November 2025, 36 months if on or after. After that you can still qualify if no other property has a rateable value above £2,899 and your properties total less than £20,000, or £28,000 in London.
Small business rate relief is not applied automatically everywhere. If you have never claimed it and your rateable value is under £15,000, contact your council. Backdating is often possible.
Other Reliefs and Exemptions
- Empty property relief. No rates for the first three months a property is empty, extended to six months for qualifying industrial premises. After that the full charge applies. Listed buildings are exempt while empty.
- Charitable rate relief. 80 percent mandatory relief for charities and community amateur sports clubs where the property is wholly or mainly used for charitable purposes, with councils able to top it up to 100 percent.
- Rural rate relief. For the sole village shop, post office, pub or petrol station in a qualifying settlement.
- Exempt property. Agricultural land and buildings, fish farms, places of public religious worship, and buildings used for the training or welfare of disabled people are outside the system entirely.
- Hardship relief. Discretionary, granted by the council, and rarely publicised. Worth asking about if the business is genuinely struggling.
Do You Pay Business Rates If You Work From Home?
Usually not. If you work at a desk in a spare room, use a room for occasional client calls, or sell online from home, you will normally pay council tax only and nothing else.
You may become liable if part of the property is used exclusively for the business and would not reasonably be used as living space, if you have adapted it structurally, if you sell goods to customers who come to the property, or if you employ staff there. A converted outbuilding running as a salon or a workshop is the classic trigger. In that situation the VOA can create a separate rating assessment for that part while the rest of the home stays in council tax.
If you are close to that line, get it looked at before someone else raises it, because assessments can be backdated.
Checking and Challenging Your Rateable Value
Your rateable value is an opinion, formed by a valuer who has probably never been inside your premises. Opinions can be wrong, and about a third of the challenges the VOA handles produce a change.
The process in England is Check, Challenge, Appeal:
- Check. Confirm the facts the VOA holds: floor area, use, layout, parking, any part you no longer occupy. Errors here are common and are the easiest thing to fix.
- Challenge. If the facts are right but you believe the valuation is wrong, submit evidence, normally rental evidence from comparable properties around the 1 April 2024 valuation date.
- Appeal. To the independent Valuation Tribunal if the challenge is refused.
You need a Business Rates Valuation Account on GOV.UK to start, and a valuation can go up as well as down, so it is worth understanding your position before you open a case.
Be careful about who you let do this for you. Rating agents cold call businesses relentlessly after every revaluation, and a proportion of them charge substantial upfront fees for challenges that were never likely to succeed. A reputable agent will tell you honestly whether there is a case before taking money. The VOA has published warnings about this for years, which tells you how persistent the problem is.
Two things worth knowing while you decide. Business rates are an allowable deduction against corporation tax or income tax as a trading expense, so the net cost is lower than the headline. And a successful challenge is normally backdated to the start of the list, so it can produce a refund as well as a lower future bill.
Scotland, Wales and Northern Ireland
Business rates are devolved, so the rules above are England's.
Wales revalued on the same date and moved to three multipliers for 2026/27: 50.2p standard, 35.0p retail, and 51.5p higher.
Scotland calls it non-domestic rates and sets a poundage rather than a multiplier, with three bands, plus the Small Business Bonus Scheme in place of small business rate relief.
Northern Ireland operates a different system again, with rates split between a regional rate and a district rate, and its own revaluation cycle.
If you occupy property in more than one nation, do not assume the reliefs transfer. They generally do not, and the thresholds are different in each.
Our View
The high street tax cut is a tax rise for a lot of the high street this year. We are not against the policy. Putting a permanent, predictable discount into the multiplier is far better design than a temporary relief renewed at every Budget, and businesses can actually plan around it. But the honest description of what happened in April 2026 is that a generous temporary relief ended and a smaller permanent one replaced it. For an RHL business with an unchanged rateable value that had the full 40 percent, the first-year effect is roughly a 28 percent increase. That was not how it was presented, and a lot of business owners discovered it from a bill rather than from the coverage.
The squeezed middle is where the pain lands. A shop with a rateable value under £12,000 pays nothing, so losing the 40 percent relief costs it nothing. A property over £500,000 was never the target of small business policy. The businesses that absorb the full change are the ones between roughly £15,000 and £51,000 of rateable value: the village pub, the twenty-cover restaurant, the independent gym, the small hotel. Too big for small business rate relief, too small for anyone to design policy around. That band contains a very large share of the businesses people mean when they say they want to save the high street.
The relief thresholds are quietly shrinking. Small business rate relief has used the same £12,000 and £15,000 thresholds since April 2017. Rateable values have been revalued twice since then and rose about 10.5 percent in aggregate at this revaluation alone. Nothing has been announced, no rate has changed, and yet fewer businesses qualify each cycle. This is fiscal drag applied to a property tax, and it works exactly the way frozen income tax thresholds do, only with less scrutiny because the numbers are smaller and there is no annual headline. If the £12,000 threshold had tracked the rise in rateable values since 2017 it would sit meaningfully higher today.
The £500,000 threshold is a cliff, not a taper, and that is bad design. The high value multiplier applies to the whole rateable value, not the excess above £500,000. So an RHL property valued at £499,999 pays 43p, giving a bill of about £215,000. Value it at £500,000 and it pays 50.8p on all of it, giving £254,000. One pound of extra rateable value costs about £39,000. For a non-RHL property the same pound costs about £14,000. No other UK tax has a cliff of that shape, and it creates an obvious and entirely rational incentive to argue very hard about valuations that land anywhere near the line. A tapered band would have raised similar money without the distortion.
Charging a fixed tax on premises regardless of trading is the real structural problem, and none of this fixes it. Business rates fall hardest on businesses that need physical space and operate on thin margins, which is a fairly precise description of retail and hospitality. They are payable in full in a bad year. They cannot be deferred against future profits the way a loss can. From a working capital point of view they behave like rent to a landlord who never renegotiates. Successive governments have promised fundamental reform and delivered adjustments to the multiplier. April 2026 was a well-intentioned, better-than-average adjustment. It was not reform.
Practical advice, in order. Check your rateable value against comparable properties before you accept it. Confirm which of the five multipliers you are actually on, because RHL classification is worth 5p and mistakes happen. Claim small business rate relief if your rateable value is under £15,000 and you have never asked. Model the end of transitional relief in 2029 rather than the capped figure you are paying now. And treat any unsolicited call from a rating agent with the scepticism you would apply to any other cold call about your money.
How IAK Can Help
Business rates are not a filing obligation, so they fall outside what most accountants are asked to look at. We think that is a mistake, because for a business with premises they are usually one of the three largest overheads and one of the few that can be reduced with a phone call rather than a change in trading.
For clients with commercial property we check the rateable value against the new list, confirm the correct multiplier band and RHL status, identify every relief that applies including ones councils do not apply automatically, and build the unwinding of transitional relief into cash flow forecasts so the 2029 number is not a surprise. Where a formal challenge looks worthwhile we will say so, and where it does not we will say that too.
If your bill went up this April and you are not sure why, or you have taken on a second property and lost a relief, or you are weighing up premises and want to know the real annual cost before you sign, contact us for a free consultation. You may also find our guides to fixed and variable costs, capital allowances, VAT and what an accountant actually does useful, and if you are choosing a structure in the first place, our comparison of sole trader and limited company covers the wider cost picture.
Sources
- Business rates: Overview, GOV.UK, on how rates are calculated, who pays and the role of the local council.
- Small business rate relief, GOV.UK, on the £12,000 and £15,000 thresholds, the taper, the £2,899 and £20,000 limits, and the extension of the second property period from 12 to 36 months for properties taken on from 27 November 2025.
- Business Rates Multipliers: Qualifying Retail, Hospitality or Leisure, GOV.UK, on the RHL definition, the 5p differential, the £51,000 and £500,000 thresholds and the excluded property types.
- Effects of the business rates retail, hospitality and leisure multipliers and high-value multiplier, GOV.UK, on the five multiplier rates, the 750,000 RHL properties, the 21,000 high value properties, the pub and restaurant figures and the £270 million from distribution warehouses.
- Business Rates Relief: 2025/26 Retail, Hospitality and Leisure Scheme, GOV.UK, on the 40 percent relief and the £110,000 cash cap that applied until 31 March 2026.
- Budget 2025: Retail, Hospitality and Leisure Factsheet, GOV.UK, on the permanently lower multipliers announced on 26 November 2025.
- Revaluation 2026, Valuation Office Agency blog, on the 1 April 2024 valuation date, the three year revaluation cycle and the Check, Challenge, Appeal process.
- Business rates: the 2026 revaluation, House of Commons Library, on the revaluation, the transitional relief package and the devolved position.
- Types of business rates relief, GOV.UK, on empty property, charitable, rural and hardship relief and exempt property.