Business premises and business rates: what a new company needs to check

Understand how business rates are calculated

Business rates are calculated by multiplying a property’s rateable value, set by the relevant valuation body, by a multiplier set by central government for that year. The rateable value broadly reflects the estimated annual open-market rental value of the property at a fixed valuation date, not what you actually pay in rent.

The multiplier differs depending on the size of the property: a lower small business multiplier applies to most properties below a set rateable value threshold, while a higher standard multiplier applies to larger properties. Check the current multipliers for the relevant year, since they are reviewed annually and vary by nation.

Check small business rate relief eligibility and the sliding scale

In England, small business rate relief is available where a business occupies only one property (with limited exceptions for additional low-value properties) and that property’s rateable value is below the relevant threshold. Full relief applies up to a lower rateable value limit, and relief tapers down on a sliding scale above that, reaching zero at the upper limit for this particular relief.

Worth knowing: Relief thresholds and multipliers change periodically and are devolved; always check the current rules for your local authority area before budgeting.

Understand what a commercial lease actually commits you to

A commercial lease is a binding contract, often for a fixed term with limited early exit rights, and typically makes the tenant responsible for rates, insurance contribution, service charges and repairs in addition to rent. A personal guarantee from a director is common for a new or small company with limited trading history, which can expose the director personally even though the company holds the lease.

Before signing, check the length of the term, any tenant-only break clause, rent review mechanism, repairing obligations (particularly for older or shared buildings), and whether the landlord’s consent is needed for alterations or assignment. A solicitor’s review of heads of terms before signing is usually worthwhile for anything beyond a short, simple licence.

• Check the length of the lease term and any break clauses available to the tenant.
• Confirm who is responsible for rates, insurance, service charge and repairs.
• Ask whether a personal guarantee is required and understand its full exposure.
• Check rent review terms and how often rent can increase during the term.
• Confirm whether landlord consent is needed to alter, sublet or assign the lease.

Working from home has its own rules and limits

Running a business from home generally does not trigger business rates on the whole property, but part of the home can become rateable if it is used exclusively and substantially for business purposes, separately from domestic use, for example a converted outbuilding used solely as an office or workshop. The local valuation office assesses this on the facts, not a fixed rule of thumb.

Using a spare bedroom for occasional admin work rarely triggers a rates assessment, but running a business with customer visits, dedicated commercial equipment, or structural changes made purely for business use can. Check your mortgage or tenancy terms too, since some prohibit business use without separate consent, and inform your home insurer if the business use is more than incidental.

1. 1

   Assess how much of the property is used exclusively for business purposes.

2. 2

   Check your mortgage, tenancy and lease terms for business-use restrictions.

3. 3

   Tell your home and contents insurer about business use and equipment kept at home.

4. 4

   Contact the local valuation office if in doubt about a possible rates assessment.

5. 5

   Keep records of business-use space in case a future query arises.

Check planning use class before committing to premises

Commercial premises are classified by planning use class, which governs what activities can lawfully take place there without further planning permission. Moving into a unit designed for one use and operating a materially different activity (for example running food preparation in a unit classed for general retail) can breach planning control, even if the landlord did not object.

Ask the landlord or agent to confirm the current lawful use class before signing, and check with the local planning authority if your intended use is anything other than straightforward and clearly consistent with that class. Change of use applications can take time and are not guaranteed to succeed.

Business rates differ across the UK nations

Business rates (non-domestic rates) are devolved. England, Wales, Scotland and Northern Ireland each set their own multipliers, relief schemes and thresholds, administered by different bodies: local authorities in England and Wales (with Welsh rates set by the Welsh Government), local authorities under the Scottish Government’s Small Business Bonus Scheme in Scotland, and Land & Property Services in Northern Ireland.

A relief scheme available in England, such as small business rate relief at a particular threshold, may have a different name, threshold or percentage reduction elsewhere. If you operate or plan to operate premises in more than one nation, check the rules separately for each, rather than assuming a UK-wide standard rate.

Worked example: comparing a retail unit and a home start

Illustrative scenario: a founder considers a small retail unit with a rateable value of £13,500 in England. Checking the sliding scale, they estimate roughly 50% small business rate relief, but confirm the exact figure with the local council rather than relying solely on a general formula, since local administration and any transitional relief can affect the final bill.

As an alternative, they consider starting from home using a spare room for admin and keeping client meetings off-site. This avoids a lease commitment and any home-based rates assessment, but they still check their home insurance and mortgage terms allow occasional business use before proceeding.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Business rates relief, small business rate relief
• GOV.UK: Estimate your business rates
• GOV.UK: Planning permission and use classes

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.