Business Rates - Small Business Rates Relief

Author: Simon Hill
In: Article Published: Wednesday 12 January 2022

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Some business rates ratepayers will be entitled to small business rates relief. This article will consider the technical provisions that underpin small business rates relief, as it applies in England (Wales has slightly different rules[1]) - in particular, what is the criteria for qualifying for small business rates relief?

The relevant statutory provisions are:

(1) Local Government Finance Act 1988, section 43; and

(2) Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017/102 ('Order 2017') (in respect to tax due for chargeable days on or after 1 April 2017[2]). In paragraph 1 to the Explanatory Note to the 2017 Order (contained with the 2017 Order, but not forming part of it), it is stated:

'Article 1 provides that articles 2 and 3 of this Order has effect for the purposes of determining eligibility for, and calculating the amount of, small business rate relief in respect of days falling on or after 1st April 2017'

Small Business Rates Relief - The Provisions

The Local Government Finance Act 1988 ('the 1988 Act') contains section 43, entitled 'Occupied hereditaments: liability'. This is the main section that imposes national non-domestic rates (i.e. 'Business Rates') on ratepayers, where the hereditament (i.e. the unit of property subject to tax) is rateably occupied on any given chargeable day(s). The main subsection imposing liability for business rates, is subsection (1);

(1) A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year—

(a) on the day the ratepayer is in occupation of all or part of the hereditament, and

(b) the hereditament is shown for the day in a local non-domestic rating list in force for the year.

The above provision applies the liability for business rates where the hereditament is rateably occupied. With small business rates relief, the ratepayer not relieved of this liability per se. Where the relief comes in is with a reduction in the quantum of this liability (sometimes down to, effectively, zero). The application of small business rates relief is therefore not to the liability itself (the ratepayer remains liable) but to the quantum the ratepayer has to pay, reducing the figure down. It does this by changing the formula used to calculate the sum due - which as we will see, involves adding an extra element to the formula, an 'E' on the bottom layer. 

Returning to section 43, subsection (2) and (3) provide:

(2) In such a case the ratepayer shall be liable to pay an amount calculated by—

(a) finding the chargeable amount for each chargeable day, and

(b) aggregating the amounts found under paragraph (a) above.

(3) A chargeable day is one which falls within the financial year and in respect of which the conditions mentioned in subsection (1) above are fulfilled.

The task then is to find, that is, to calculate, the chargeable amount for each chargeable day within the relevant liability period. 

The default calculation (i.e. formula) used to calculate business rates is contained in subsection (4)[3] and is:

(A × B)/(C)

The exact meaning ascribed to A, B and C is not relevant for present purposes. The point to note is that the chargeable amount is the product of a formula where AxB is divided by C. 

This default calculation/formula does not apply in all circumstances. There are various circumstances where the default calculation does not apply, and a different calculation/formula is used in its place. One of those circumstances relates to small business rates relief, with the relevant provisions contained in subsections (4A) and (4B).   

Subsections (4A) and (4B) provide: 

'(4A) Where subsection (4B) below applies, the chargeable amount for a chargeable day shall be calculated

(a) in relation to England, in accordance with the formula—

( A × D ) / ( C × E )

...

(4B) This subsection applies

(a) in relation to England, where—

...

(ii) on the day concerned any conditions prescribed by the Secretary of State by order are satisfied...’ [bold added]

As will be apparent, where '..any conditions prescribed by the Secretary of State by order are satisfied...', subsections (4A) and (4B) stipulate that a modified calculation formula is to be used. The difference between the default calculation/formula and the modified calculation/formula being, that C is now multiplied by E. Given where C and E are in the calculation/formula, the larger the number E is, the larger the figure that divides the product of AxB, and so the lower the product of the calculation/formula will be. In other words, the larger the number E is, the lower the chargeable day figure will be, and so, the amount of tax the ratepayer has to pay for a given chargeable day will be lower. 

Turning to whether subsection 4A applies. Subsection 4B states that subsection 4A applies only if '..any conditions prescribed by the Secretary of State by order are satisfied...' What are these conditions? The Secretary of State has only prescribed one condition, and it is contained in Order 2017, article 2. Article 2 is entitled 'Conditions for relief' and reads:

'For the purpose of section 43(4B)(a)(ii) of the Act, the condition to be satisfied is that the rateable value of the hereditament as shown in the local non-domestic rating list for the chargeable day is not more than £50,999'

It should be easy to determine whether or not this condition is satisfied, by simply locating the hereditament on the Valuation Office Agency Rating List, and noting the Rateable Value ascribed to the hereditament, there recorded. 

Where this condition is satisfied, and so subsection 43(4A) applies, it is necessary to then consider section 44 of the 1988 Act, entitled ‘Occupied Hereditaments: supplementary’, wherein subsection 9 reads:

'(9) E is such amount as may be prescribed—

(a) in relation to England, by the Secretary of State by order,'

The Secretary of State also included in the 2017 Order, along with the article 2 condition, the value to be placed on 'E' in a number of different circumstances.

Calculating the Value of 'E'

Article 3 is entitled 'Amount of E' and paragraph (1) to article 3 states:

'(1) The amount of E prescribed for the purposes of subsection 44(9)(a) of the Act (occupied hereditaments: supplementary) shall be found in accordance with paragraphs (2) to (8).

Article 3, paragraphs (2) and (3) provide:

(2) Where the ratepayer occupies only one hereditament in England and the rateable value of that hereditament shown in the local non-domestic rating list for the chargeable day concerned is not more than £12,000, E shall be 5,000,000.

(3) Where the ratepayer occupies only one hereditament in England and the rateable value of that hereditament shown in the local non-domestic rating list for the chargeable day concerned is more than £12,000 and not more than £15,000, E shall be (subject to paragraph (5)) the amount derived from dividing 3000 by the figure reached by subtracting 12000 from the rateable value of the hereditament shown in the local non-domestic rating list for that day.'[4]

Article 3 paragraphs (6) to (8) define what '...occupies only one hereditament in England...' in each of paragraphs (2) and (3) above, means. Those paragraphs read:

'(6) In determining, for the purposes of paragraphs (2) or (3), whether the ratepayer occupies only one hereditament in England (“hereditament A”), the ratepayer's occupation of any other hereditament in England (“hereditament B”) shall be disregarded where the conditions in either paragraph (7) or (8) are satisfied.

(7) The conditions are—

(a) the ratepayer's occupation of hereditament B started on a date after that ratepayer started to occupy hereditament A;

(b) on the chargeable day concerned, the ratepayer has occupied hereditament B for a period not exceeding 12 months; and

(c) the amount of E for the chargeable day concerned in relation to hereditament B is not determined in accordance with paragraph (2) or (3) of this article.

(8) The conditions are—

(a) the rateable value of hereditament B shown in the local non-domestic rating list for the chargeable day concerned is not more than £2,899;

(b) the aggregate rateable value on the chargeable day concerned of all the hereditaments the ratepayer occupies in England (but excluding any hereditament B that falls within paragraph (7)) is not more than—

(i) for a hereditament situated in Greater London, £27,999;

(ii) for a hereditament situated outside Greater London, £19,999; and

(c) the amount of E for the chargeable day concerned in relation to hereditament B is not determined in accordance with paragraph (2) of this article.'

Where article 3 paragraph (2) applies, E will have a value of 5,000,000. Since AxB is divided by the product of C x 5,000,000, the business rates due for each chargeable day will, effectively, be zero.

Where article 3 paragraph (3) applies, E will have a value dependant on '...the amount derived from dividing 3000 by the figure reached by subtracting 12000 from the rateable value of the hereditament shown in the local non-domestic rating list for that day'. To consider almost the two ends of the spectrum for this:

(1) a rateable value of 14,900, will produce a calculation 14,900-12,000 = 2,900. 3000 / 2,900  = 1.03 odd. Since AxB is divided by the product of C x E, the business rates due here for each chargeable day be almost the same as if no small business rates relief was awarded; and

(2) a rateable value of 12,100, will produce a calculation 12,100-12,000 = 100. 3000 / 100 = 30. Since AxB is divided by the product of C x E, the business rates due here for each chargeable day will be very significantly less than if no small business rates relief was available.

Where Neither Article 3 Paragraph (2) and (3) Circumstances Apply

Where a ratepayer does not fall within any of the above 2 categories (in article 3 paragraph (2) or (3)), article 3 paragraph (4) will apply:

'(4) In any case not falling within paragraph (2) or (3), E shall be 1.'

The effect of 'E' being 1 is that E will have no effect on the outcome of the formula. It is inert; C x 1 is the same number as C. The product of A x B is divided by the same number, and so the chargeable rate will be the same. In essence, small business rates relief does not apply to ratepayers who do not fall within either article 3 paragraph (2) or paragraph (3). 

SIMON HILL © 2022

BARRISTER

33 BEDFORD ROW

S.HILL@33BEDFORDROW.CO.UK

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] The version of Local Government Finance 1988 section 43 that applies to Wales is slightly different to that which applies to England. It is beyond the scope of this article to deal with the version that applies to Wales.

[2] Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017/102 came into force on 3 March 2017. 

Article 1 is entitled 'Citation, application and commencement' and article 1 paragraph (1) provides:

'This Order, which applies in relation to England only, may be cited as the Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017 and comes into force on 3rd March 2017.'

Articles 1(2) and 1(3) then provide that the two key articles, articles 2 and 3, apply to chargeable days on or after 1 April 2017:

'(2) Articles 2 and 3 of this Order apply for the purposes of—

(a) determining whether section 43(4B) of the Act (occupied hereditaments: liability) applies as regards a ratepayer and a hereditament, and

(b) calculating the chargeable amount for a chargeable day under section 43(4A)(a) of the Act, in respect of chargeable days falling on or after 1st April 2017.

Formerly, the applicable statutory instrument was Non-Domestic Rating (Small Business Rate Relief) (England) Order 2012 (SI 2012/148)(as amended by SI 2013/15, SI 2014/43, SI 2015/106 and SI 2016/143). For any days prior to 1 April 2017, the Non-Domestic Rating (Small Business Rate Relief) (England) Order 2012 is still the applicable statutory instrument. This is made clear in Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017/102, where article 6 is entitled 'Revocations' and provides:

'(1) Subject to paragraph (2), the Non-Domestic Rating (Small Business Rate Relief) (England) Order 2012 1 is revoked.

(2) The Non-Domestic Rating (Small Business Rate Relief) (England) Order 2012 shall continue to have effect in respect of chargeable days falling before 1st April 2017.'

[3] The default calculation in the Local Government Finance Act 1988 section 43(4), provides:

'...the chargeable amount for a chargeable day shall be calculated in accordance with the formula—

(A×B)/(C)'

This is the default calculation. Subsection 43(4) makes clear though, that this default calculation does not apply where any of section 43 '...subsections (4A), (4E), (4I), 4(5) and (6A)...' apply.

[4] In Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017/102, article 3 paragraph (5) reads:

'(5) Amounts calculated under paragraph (3), shall be calculated to three decimal places only—

(a) adding one thousandth where (apart from this sub-paragraph) there would be more than five ten-thousandths; and

(b) ignoring the ten-thousandths where (apart from this sub-paragraph) there would be five, or less than five, ten thousandths.'