Business Rates & Commercial Property: How It Differs from Council Tax 2025
How Business Rates work (2025–26): From property value to final bill, and how revenue is shared locally and nationally.
Business rates and council tax are both local taxes, but they apply to different property types and operate under distinct rules. While council tax funds residential services, business rates support commercial property infrastructure. Understanding these differences is essential, as businesses in England paid £25.2 billion in business rates in 2024-25, with significant relief schemes available that many eligible businesses overlook.
What Are Business Rates?
Business rates are local taxes charged on non-domestic properties used for commercial purposes. They're collected by local councils but set by central government through a national multiplier system. Properties liable for business rates include shops, offices, pubs, warehouses, factories, and holiday rental properties. The tax applies to any property used wholly or mainly for non-domestic purposes, regardless of whether it actively operates as a business.
The Valuation Office Agency (VOA) assigns each commercial property a rateable value based on estimated annual rental value on the open market. This valuation is updated every five years during revaluation cycles, with the most recent revaluation taking effect in April 2023 based on April 2021 rental values.
The Valuation Office Agency (VOA) assigns each commercial property a rateable value based on estimated annual rental value on the open market. This valuation is updated every five years during revaluation cycles, with the most recent revaluation taking effect in April 2023 based on April 2021 rental values.
Key Differences from Council Tax
| Aspect | Council Tax | Business Rates |
|---|---|---|
| Applies to | Residential properties | Commercial/non-domestic properties |
| Valuation basis | 1991 property values (England) or 2003 (Wales) | Current rental values (updated every 5 years) |
| Number of bands | 8 bands (A-H) or 9 in Wales | No bands - calculated from rateable value |
| Who sets rates | Local council sets Band D charge | Central government sets multiplier |
| Average charge (2025) | £2,171 (Band D, England) | £26,000 median for retail premises |
| Payment responsibility | Resident or property owner | Business occupier (not landlord) |
| Revaluation frequency | Never (frozen at 1991/2003) | Every 5 years |
| Relief schemes | Discounts & CTR (means-tested) | Multiple relief schemes (size/sector-based) |
The fundamental difference lies in liability: council tax follows the property owner or resident, while business rates follow the business occupier. If you rent commercial premises, you pay the business rates even if your lease includes rent, unless your landlord explicitly covers this cost.
Calculation and Valuation
Business rates are calculated by multiplying your property's rateable value by the appropriate multiplier (also called the UBR - Uniform Business Rate). For 2025-26, England's standard multiplier is 54.6p per £1 of rateable value, with a reduced small business multiplier of 49.9p for properties with rateable values below £51,000.
Calculation example: - Shop with rateable value of £20,000 - Uses small business multiplier: 49.9p - Annual bill: £20,000 × 0.499 = £9,980
Rateable values represent the property's estimated annual rental value as of the revaluation date (currently 1 April 2021). The VOA assesses this based on location, size, layout, and market rental evidence for comparable properties. Unlike council tax's frozen 1991 valuations, business rates reflect current market conditions through regular revaluations.
Calculation example: - Shop with rateable value of £20,000 - Uses small business multiplier: 49.9p - Annual bill: £20,000 × 0.499 = £9,980
Rateable values represent the property's estimated annual rental value as of the revaluation date (currently 1 April 2021). The VOA assesses this based on location, size, layout, and market rental evidence for comparable properties. Unlike council tax's frozen 1991 valuations, business rates reflect current market conditions through regular revaluations.
Business Rate Reliefs & Exemptions
| Relief Type | Reduction | Eligibility Criteria |
|---|---|---|
| Small Business Rate Relief | Up to 100% | Rateable value under £15,000; one property only |
| Retail, Hospitality & Leisure Relief | 75% (2025-26) | Shops, restaurants, hotels, leisure properties; capped at £110,000 per business |
| Rural Rate Relief | 100% | Post offices, food shops, pubs in rural areas with population under 3,000 |
| Charitable Rate Relief | 80% mandatory, 100% discretionary | Registered charities using property for charitable purposes |
| Empty Property Relief | 100% for 3-6 months | Newly vacant properties (3 months standard, 6 months for industrial) |
| Supporting Small Business Relief | Transitional caps | Protects businesses losing other reliefs after revaluation |
Small Business Rate Relief is particularly valuable: properties with rateable values under £12,000 pay no business rates, while those between £12,001-£15,000 receive tapered relief. This can save businesses up to £5,976 annually.
Most reliefs require application to your local council. Some, like charitable relief, apply automatically but may need verification. Empty property relief applies automatically but only temporarily—after the relief period expires, empty properties incur full charges and potentially additional premiums.
Most reliefs require application to your local council. Some, like charitable relief, apply automatically but may need verification. Empty property relief applies automatically but only temporarily—after the relief period expires, empty properties incur full charges and potentially additional premiums.
How to Check or Appeal Your Rate
Check your property's rateable value at https://www.gov.uk/correct-your-business-rates by entering your postcode. The service shows your current valuation, property details, and comparable properties.
If you believe your rateable value is incorrect, follow the VOA's three-stage process: (1) Check - review and confirm property facts online, (2) Challenge - explain why the valuation is wrong once facts are confirmed, (3) Appeal - take your case to an independent tribunal if the VOA disagrees. You must complete each stage before progressing. Challenges are typically accepted when property details are wrong, comparable properties have lower valuations, or material changes affect rental value.
Bills arrive in February or March for the April-March tax year. Standard payment is ten monthly installments (April-January), though you can arrange twelve monthly payments with your council.
If you believe your rateable value is incorrect, follow the VOA's three-stage process: (1) Check - review and confirm property facts online, (2) Challenge - explain why the valuation is wrong once facts are confirmed, (3) Appeal - take your case to an independent tribunal if the VOA disagrees. You must complete each stage before progressing. Challenges are typically accepted when property details are wrong, comparable properties have lower valuations, or material changes affect rental value.
Bills arrive in February or March for the April-March tax year. Standard payment is ten monthly installments (April-January), though you can arrange twelve monthly payments with your council.
Frequently Asked Questions
What is the difference between council tax and business rates?
Council tax applies to residential properties and is based on 1991 property values with fixed bands (A-H). Business rates apply to commercial properties and are calculated from current rental values updated every 5 years. Council tax is paid by residents or owners, while business rates are paid by the business occupier. Business rates are typically higher - the average retail business pays £26,000 annually versus £2,171 for average residential Band D.
Who pays business rates - landlord or tenant?
The business occupier (tenant) pays business rates, not the landlord or property owner. If you rent commercial premises, you're responsible for business rates unless your lease explicitly states the landlord covers this cost. Even if your rent includes 'rates', you remain legally liable if the landlord doesn't pay.
How are business rates calculated in 2025?
Business rates are calculated by multiplying your property's rateable value by the government multiplier. For 2025-26, the standard multiplier is 54.6p per £1 of rateable value. Small businesses with properties under £51,000 rateable value use the reduced 49.9p multiplier. For example, a shop with £20,000 rateable value pays £20,000 × 0.499 = £9,980 annually.
Can small businesses get business rates relief?
Yes. Small Business Rate Relief gives up to 100% relief for properties with rateable values under £15,000. Properties under £12,000 pay nothing, while those between £12,001-£15,000 receive tapered relief. You must occupy only one property and apply to your local council. This can save up to £5,976 annually.
Do I pay business rates on an empty property?
Empty properties receive 100% relief for the first 3 months (6 months for industrial properties). After this period, you must pay full business rates. Some properties also incur empty property premiums. Industrial properties and properties with rateable values under £2,900 may qualify for extended relief.