Business Rates vs Council Tax

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When an individual owns a property, they have to pay tax to their local authority for that property. However, the type of tax they need to pay is often a source of much confusion: do they need to pay council tax, or business rates?

Below, we’ll look into the two main property tax types, where they apply, and what the major differences are when considering business rates vs. council tax.

What is council tax?

Council tax applies to all domestic properties in Britain. The person who officially owns the property is responsible for paying council tax, unless the property is rented, in which case the tenant is responsible providing specific requirements have been met.

The rate of council tax is calculated based on the value of the property and the number of people living in the property. Properties are ‘banded’ A through H, with A the lowest band and H the highest, and thus most expensive. In 2018/19, the average Band D council tax bill will be £1,671 per year, a 5.1% rise compared to 2017/18.

What are business rates?

Business rates are similar to council tax in that they are a local authority property tax, but the rates only apply to non-domestic properties: for example, shops, offices, factories, and warehouses. Some non-domestic properties – such as churches – are exempt from business rates, but strict legal requirements have to be met in order for exemption to be allowed.

The amount a business owner will pay in tax varies between businesses. All business premises have a “rateable value” assigned to the property by the Valuation Office Agency (VOA). This value is then multiplied by one of two business rate multipliers: properties with a rateable value of less than £51,000 use the “small business multiplier”, while properties over £51,000 use the standard multiplier. In 2018/19, the small business multiplier is 48.0p, while the standard multiplier is 49.3p; a rise of 1.4p in both cases.

Do people who work from home have to pay both taxes?

People who regularly work from their domestic property are arguably the thorniest issue in the business rates vs council tax debate.

Individuals may have to pay both rates of tax if their property combines both domestic and non-domestic use. This may be the case if, for example, if they own a property that comprises of a shop on the first level, but has living quarters above it. However, in most cases, only one tax will be applied, depending on how the property is mainly used.

How do people who work from home decide which tax they need to pay?

People who work from home can pay council tax, rather than business rates, if the following applies:

  • Only a small part of the property is used for business purposes
  • The property is not visited by customers or clients in order to buy products or use a service
  • No employees use the property as a place of work
  • The property is not converted for non-domestic purposes

In conclusion

There’s no denying that the modern predilection for home-based business has confused the business rates vs council tax debate, so any business owner wondering which tax they need to pay should query the matter with their local authority just to be sure they are aligned with all legislative requirements.

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