Council tax and business rates are the primary ’local taxes’ in the UK (although in Northern Ireland the equivalent tax to council tax is called rates). Local council taxes are a devolved matter in Scotland and, although they follow closely the rules as for England and Wales, there are some differences which we have identified in a separate annex.
The money collected through these property taxes goes to local authorities (councils) to pay for local services such as maintaining parks, collecting rubbish, policing and personalised care.
Council tax applies to all properties, including mobile homes, caravans and boats whether they are rented or owned, which are used as the homes of individuals. These properties are described as domestic properties.
Business rates are payable on most premises that are used for business purposes. Premises would include a factory or a shop but can, in some circumstances, include part of your own home if it is used for business purposes.
These property taxes are based upon the value of the properties concerned, rather than the income of the individuals or businesses that occupy them. They bring in significant amounts of money, collecting much more than other taxes such as Corporation Tax, Capital Gains Tax or Inheritance Tax.
Below, we consider council tax and business rates in turn.
The administration and collection of council tax is carried out by local councils. However, the rules are set by the Department for Communities and Local Government (DCLG) and the values of properties in England and Wales are determined by the Valuation Office Agency (VOA), and executive agency of HMRC.
Domestic properties are graded in bands from A to H, with A being the lowest band. The valuation system can be confusing because the basis of the values is a historical value and the systems vary between England, Wales and Scotland. Properties in Wales were revalued in 2003 but in England the last valuation was in 1991. The most important thing to understand is in which band your own property is graded. If you do not know, find out by putting your details into the VOA finder.
The council tax year ends on 31 March and every year each council sets a rate of council tax for each property band. Council tax is calculated on a daily basis, so it is important to notify the council if your circumstances change, for example you move home.
You can challenge the band in which your property has been placed by making a ‘proposal’ to have your band changed. There is more about when this is likely to apply on the VOA website.
Valuations, particularly historical ones, are not set in stone but are an opinion of a valuer. Unless your property is very different or has been changed significantly, one of the most important things to consider is the valuation of your neighbours’ properties. If yours is out of line, for no apparent reason, you may have a case to challenge the Valuation Office. You can ring your local VOA to discuss your case. That Office should be objective and, if there has been a mistake, it will be rectified. This can lead to a repayment which may be backdated too.
When making a valuation, the valuer should consider any permanent fixtures designed for a disabled person. Enhancements are disregarded but fixtures that lower the property value should be taken into account in the valuation.
Every council will have a council tax disability reduction scheme. To apply for a reduction under this scheme your home must be the only or main residence of a person with a disability. It must have a room or other feature which is necessary for the needs and well-being of the disabled person, such as a room set aside for dialysis or other treatment or activity.
If your claim is accepted your home will be moved down a band if in England, Wales or Scotland. If your home is already in Band A your council tax bill will be reduced by one sixth. In Northern Ireland the relief is given by reducing the property valuation by 25%.
The local council set a rate of council tax for each band. This fixes the amount you have to pay, subject to a range of:
- exemptions – total removal from charge
- discounts – partial removal from charge
- rebates – a reduction in the charge.
These exemptions, discounts and rebates are not necessarily applied consistently across councils so it is important to check the rules applied by your own specific council.
You should also note the following changes from April 2013.
Councail Tax Benefit for people who need help paying their council tax has been replaced with local Council Tax Support schemes from 1 April 2013. The funding to local councils from central government is reduced and therefore some may offer less support to certain households under the new scheme than they have done previously.
You will need to check in your local area what this may mean to you and your own support. Most councils will have detailed information on their websites including leaflets, frequently asked questions and legislative papers which explain the changes. You can find out more here.
Please note that in many areas the 'second adult rebate' has been abolished.
Here are some examples of what you may be entitled to.
Exemptions due to the property itself
- The property has been condemned, is derelict or uninhabitable and has been removed from the Council Tax list
- The property has been legally re-possessed by a mortgage lender
- The property is largely unfurnished and unoccupied. Some minor occupation is allowed and you should check with your local council. This exemption can last for up to six months
- The property is a caravan or boat, used as a main residence, which is unoccupied for up to six months
- The property is a separate granny annexe or flat occupied by a dependent relative of the main occupier
- The occupier has moved out because they have a need to be cared for, perhaps in a care home or hospital or have gone to live with relatives or friends, so the property is unoccupied
- The occupier has moved elsewhere to care for another person so the property is unoccupied
- The occupiers are all people with severe mental impairment
- The occupiers are all students or certain foreign language assistants
- The occupiers are all people under 18
These normally range from 10% to 50% and may be given if:
- only one adult is living in the property as their main home
- the property is a second home
- the property is unoccupied but furnished.
People who are not counted for the purposes of discounts
Because some discounts depend upon who else lives with you, it is important that you know who will be ignored when counting who lives in the property:
- full time students, student nurses and midwives, apprentices and youth trainees
- patients resident in hospital and people who are being looked after in care homes
- people who are severely mentally impaired
- people staying in certain hostels or night shelters
- 18 and 19 year olds who are at, or have just left, school
- careworkers working for low pay, usually for charities
- people caring for someone with a disability who is not a spouse, partner or child under 18
- members of visiting armed forces and certain international institutions
- members of religious communities, such as monks and nuns
- people in prison, except those who are in prison for non-payment of council tax.
Rebates bring in another factor and that is the income of the person liable to the council tax or of someone living with them.
Changes have been made from April 2013 which may affect you and your benefits and you will need to check in your local area what this may mean to you and your own support. The newly introduced Council Tax Support differed between councils but broadly speaking if you are already entitled to certain income-related benefits, or if you are a lone parent of a child under 5, then under most scheme you should automatically qualify for some margin of council tax support.
You can check your eligibility by going to the Entitled to calculator.
The most important things are to check your local council scheme to understand what it means to you and remember that council tax is a tax which has to be constantly monitored. Therefore you should report any change of circumstance as quickly as possible to your local council as this can affect it greatly; it may cause you to be under or over paid.
Here is a final reminder of things to keep under review:
- you own income and that of anyone who is occupying the property with you
- the ages and occupations of anyone who might be living with you
- whether there are occupiers with a disability or on a pension
- the state and condition of the property.
The changes to council tax benefit introduced from April 13 from a centrally administered scheme to a local one may not affect you directly as some councils may simply transfer recipients across to the new structure. However you should check the position with your local authority to make sure.
Having established that there is some council tax to pay, who pays it?
There is one council tax bill for each home, whether it is a house, bungalow, flat, maisonette, mobile home or houseboat, and whether it is owned or rented. To work out who has to pay for your property, move down from 1 to 5 below until you reach a description which applies to your property. The first person arrived at to fit the description will be responsible for the bill.
- A resident freeholder, so, for owner-occupied property, the owner is liable
- A resident leaseholder, including ‘assured tenants’
- A resident statutory or secure tenant that is one whose landlord is a public body or local authority
- A resident licensee
- A resident, that is, a person of 18 or over who lives in the property as their only or main home.
If the property is unoccupied, the owner will be liable.
In some special cases the owner, not the residents, has to pay the council tax. These are:
- properties occupied by more than one household, where the residents pay rent separately for different parts of the property and where each household perhaps shares cooking or washing facilities, for example, some hostels, nurses’ homes or groups of bed-sits
- residential care homes, nursing homes, such as hospices, mental nursing homes or certain types of hostel providing a high level of care
- religious communities such as monasteries or convents
- properties which are not the owner’s main home, but which are the main home of someone whom the owner employs in domestic service
- vicarages and other dwellings where a minister of religion lives and works. Often, the church is responsible for the bill
- accommodation provided to asylum seekers under Section 95 of the Immigration and Asylum Act 1999.
If you live in a property where the owner is liable, you do not have to pay council tax. But if your landlord is the liable person, you might be asked to pay something towards the bill, depending on the terms of your agreement with your landlord.
If you find it difficult to make payments of your council tax when they are due, do seek help. The consequences of missing payments can be severe. It is very important to contact your council immediately if you are having problems keeping up the payments, or to contact an advice agency such as the local Citizens Advice Bureau. Failure to act can mean that the council might start enforcement action and bailiffs may visit you.
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From 1 April 2013 a direct link between local business rates revenue and spend is introduced. This business rates retention scheme will mean that councils will be able to retain a proportion of the income from local businesses to re-invest in the community, thereby promoting local growth.
The Department for Communities and Local Government is responsible for business rates policy in England (or the Welsh Assembly in Wales), with the VOA being responsible for assessing rateable values that are the basis for working out rates bills in England and Wales. Local councils are responsible for giving exemptions and reliefs and collecting rates.
Most premises used for business are subject to business rates. This includes commercial properties such as shops and factories. There are a few exceptions, including:
- farm buildings and land
- fish farms
- places of worship and church halls
- buildings used for the training or welfare of disabled people.
Charities and not-for-profit organisations can benefit from mandatory and discretionary reliefs. Charities would be automatically entitled to a mandatory 80% reduction on their bill if the property is used wholly or mainly for charitable purposes. The local council can also offer a further discretionary reduction or cancel the bill completely.
Community Amateur Sports Clubs are entitled to the same reductions.
A not-for-profit organisation is not entitled to the mandatory reduction but the local council can offer up to a 100% discretionary reduction.
Business rates are usually payable by the occupiers of business premises, either the owners, if they are the occupiers, or the leaseholders.
If a property is empty, the owner or leaseholder will usually still pay rates after a period of exemption has elapsed. The period of exemption covers the first three months that the property is empty. For warehouses and industrial property, the exemption period is extended to six months. The Government is introducing a new temporary measure for unoccupied new builds from October 2013, the details of which will be captured here nearer the time.
Apart from those properties which are exempt from rates, each non-domestic property has a rateable value. The rateable value broadly represents the annual rent the property could have been let for on the open market on a particular date, on full repairing and insuring terms. For the current rating list, this date was set as 1 April 2008.
Local councils are responsible for calculating actual business rates bills and for collecting rates and will use the rateable value in working out how much you have to pay. The local council will apply a rate in the pound, known as the multiplier, to the rateable value and then deduct any reliefs that are applicable. In England the multiplier is set by the Communities and Local Government and in Wales the multiplier is set by the Welsh Assembly Government.
In both England and Wales small business rates relief can give up to 100% relief from the rates charge and has been extended to 31 March 2014.
In simple terms your rates bill is your rateable value times the multiplier, minus any reliefs.
The business rates multiplier for 2013-14 in England (excluding City of London) is 47.1% (46.2% for small businesses) and 46.4% in Wales.
Scotland and Northern Ireland do things differently.
Working from home
If you work at, or from, home, the part of the property used for work may be liable to business rates whilst the remainder of the property will continue to be liable to council tax, although an alteration may be made to its banding.
The VOA considers a number of things when deciding whether or not part of your property should be liable to business rates. These include the extent and frequency of the business use of the room, or rooms, and any modifications made to the property to accommodate that use.
Each case is considered on its own merits, and the VOA may visit your property to check the facts before an assessment is made for business rates. Factors they may take into account include:
- extent of use of the relevant accommodation
- frequency and intensity of use of accommodation
- alterations made to the building to accommodate the business thereby losing the domestic character of property
- whether furniture and equipment are of a kind commonly found in domestic properties
- employees or clients coming frequently or regularly to the premises
- hours worked
- advertisement of business at the premises, that is, a nameplate on the door
- planning permission for building works or use of building being obtained. This is not conclusive but is indicative.
This list is not conclusive but indicative.
The VOA has helpfully published a number of examples to illustrate how they would approach the ‘working from home’ question. We have included two contrasting examples below which show the general approach.
An integral garage of an estate house is converted to an office with plastered walls, electric power points, solid front, suspended ceiling and floor screed suitable for carpeting. A separate telephone line has been installed. Access is through the hallway of the house. All toilet facilities are in the main house.
The occupier claims that the room is used by the family in the evenings and occasionally at weekends. During the day the occupier designs computer software. He is employed by a major company to work at home, because of a physical disability. All of the equipment has been provided by his company and is specially adapted for his needs. He visits his former office on an occasional basis.
VOA assessment: The former garage is no longer domestic property. It has been adapted for office use and should be assessed for business rates. The remainder is domestic.
The occupier is employed as a site finder by a major building company, and travels across most of the southern part of the country, using her home as a base, but calling into the company office once a week to pick up new instructions, for meetings, and to leave completed work.
She has a four drawer cabinet in the corner of a dining room, which also functions as an 'office' for the family computer, and there is no dedicated telephone line for business purposes.
The occupier is out visiting sites four days a week and does 'writing up' at home on the dining room table in the evenings and at weekends.
No clients or members of the public visit the house for business purposes.
VOA assessment: The whole of the dwelling is domestic property, and should be banded for council tax.
Further information regarding business rates can be found on GOV.UK.
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There are some variations in Scotland for council tax and business rates when compared to England and Wales and these are noted below.
As in England and Wales, the last valuation of domestic property took place in 1991. If you do not know the band or rateable value you can find out by putting your details into the Scottish Assessors finder.
You can also challenge the band in which your property has been placed by making a ‘proposal’ to have your band changed. Full details are given about this, and how to apply, on the Scottish Assessors website
The Scottish Government is responsible for business rates policy in Scotland and the Scottish Assessors for valuations. As for England and Wales, local councils in Scotland are responsible for calculating actual business rates bills and for collecting rates and will use the rateable value when working out how much you have to pay. The local council will apply a rate in the pound, known as the multiplier, to the rateable value and then deduct any reliefs that are applicable. The Scottish Government will set the multiplier.
The Business Rates calculation
In Scotland a similar small business relief is offered, called Small Business Bonus Scheme.
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