How Are Business Rates Calculated? My Guide to Understanding UK Commercial Costs

When I first got involved in running a business property, one of the most confusing things I faced was trying to figure out how much I’d owe in business rates.

Unlike council tax, which most of us are familiar with, business rates have their own system of valuation, multipliers, and reliefs — and it can feel like a minefield at first.

In this guide, I’ll break it all down in simple terms — how are business rates calculated in the UK, what impacts your bill, and what steps you can take to manage or reduce your costs.

What Are Business Rates? – Who Has to Pay Them?

What actually is business rates are a form of tax charged on non-domestic properties — meaning any building or space that’s used for commercial purposes. This includes:

• Shops and retail units

• Offices

• Pubs and restaurants

• Factories and warehouses

• Storage units and workshops

If your business uses a physical space (and it’s not part of your private residence), there’s a good chance you’ll need to pay business rates.

As the occupier, I found it was my responsibility to pay the bill, even if I was only renting the property.

What Is “Rateable Value”? – The Foundation of the Calculation

The first part of the calculation starts with something called the rateable value. This is the estimated annual rental value of your property on the open market — as judged by the government’s Valuation Office Agency (VOA).

For example, if they believe my commercial unit could rent for £30,000 per year, that becomes my rateable value. This value isn’t based on what I actually pay in rent, but what the market would expect around a set valuation date.

As of now, the most recent revaluation came into effect in April 2023, using rental data from April 2021.

The “Multiplier”: How the Business Rates Calculated?

Once you know your property’s rateable value, the next step is to apply the multiplier — also known as the Uniform Business Rate (UBR).

This multiplier is a figure (set in pence) that tells you how much to pay for every pound of your rateable value.

What are the two main types of multipliers?

• A standard multiplier for larger properties

• A small business multiplier for properties with a lower rateable value (under a specific threshold)

Here’s a simple table to show how it works:

Note: These are rough examples. The exact multiplier changes each financial year and may vary depending on your location (e.g. London weighting).

What Can Affect or Change Your Business Rates Bill?

Even after you’ve calculated your base amount, several factors can increase or reduce what you actually pay.

What I’ve learned to look out for?

• Business Rates Relief – If your property has a low rateable value, or if you run a charity, small business, or rural business, you might qualify for discounts. I claimed Small Business Rate Relief and saved a lot.

• Transitional Relief – After revaluation, your rates might not jump up (or down) all at once. Transitional relief helps phase in the changes.

• Empty Property Relief – If the building is vacant, you might get temporary exemption or a lower bill.

• Changes to the property – If you renovate, expand, or subdivide the premises, it can affect the rateable value — and that means a change in your bill.

What Determines Your Rateable Value?

One question I often hear is: “Why does this small property have a rateable value higher than another one that looks similar?”

Here’s what I’ve found makes a difference:

• Location – A shop on a high street will have a higher rental value than one in a quiet village.

• Size – The total square footage (usable space) plays a big role.

• Property type – Different kinds of buildings (retail, office, warehouse) are valued differently.

• Condition and layout – Modern, refurbished, or open-plan spaces may be worth more.

• Comparable rents – The VOA looks at similar nearby properties and market trends.

Can I Challenge My Rateable Value?

Yes — and I have. If you think your rateable value is too high or your building has been misclassified, you can appeal or request a correction through the VOA.

It’s called a “Check, Challenge, Appeal” process, and you can do it online.

When I submitted mine, I had to show evidence — floorplans, rental history, and comparisons with similar properties in the area. If successful, your rateable value (and your bill) could be reduced.

Why Understanding Business Rates Matters for Me?

Knowing how business rates are calculated helped me make better decisions when:

• Negotiating rent on a new commercial lease

• Budgeting for yearly overheads

• Claiming the right reliefs to reduce my bill

• Avoiding overpaying due to incorrect rateable value

If you’re a business owner like me, especially in retail or hospitality, this tax can be a significant part of your costs — so it’s worth getting to grips with it.

Conclusion

Business rates can seem complicated at first, but once I understood the building blocks — rateable value, multiplier, and reliefs — the whole system made a lot more sense.

If you run a commercial property, knowing how your bill is calculated gives you the power to plan better, avoid overpaying, and challenge anything that seems unfair.

My advice? Take time to check your rateable value, explore the reliefs available to you, and always budget for rates as part of your commercial property costs.

FAQs: Common Questions I’ve Had About How Are Business Rates Calculated

1. What is the rateable value based on?

It’s based on what your property could be rented for on the open market, not what you’re currently paying in rent.

2. Do I have to pay business rates if I work from home?

Not usually, unless a clearly defined part of your home is used solely for business (like a salon or workshop).

3. Can I appeal my business rates bill?

Yes — you can appeal your rateable value if you think it’s wrong, or request relief if you qualify.

4. Is the multiplier the same for all businesses?

No — smaller businesses get a lower multiplier (small business rate), while larger properties use the standard multiplier.

5. What happens after a revaluation?

Your rateable value may go up or down. Transitional relief may apply to help adjust your bill over time.