Council tax and business rates
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.
Council tax
Rebates Who pays? Difficulty in paying Business rates
Annex
The administration and collection of council tax is carried out by local councils. However, the rules are set by the Department for Work and Pensions and the values are determined by the Valuation Office for England and Wales (an agency of HMRC).
Domestic properties are graded in bands from A to H, with A being the lowest band. The valuation system is 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 Valuation Office 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 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 Valuation Office 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 good reason, you may have a case to challenge the Valuation Office. You can ring your local Valuation Office to discuss your case. That Office should be objective and, if there has been a mistake, it will be rectified. This can lead to significant repayments (and backdating is possible).
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.
However, the following are typical.
Exemptions due to the property itself
The property has been condemned
The property has been legally re-possessed by a mortgage lender The property is largely unfurnished and has been unoccupied for up to six months. Some minor occupation is allowed and you should check with your local council The property is unoccupied because it is in need of major repairs or alterations to make it suitable for occupation. This exemption can last up to 12 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.
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.
The two primary rebates are:
- council tax benefit, an important but complex rebate. If you are already entitled to income support or to the guaranteed element of pension credit you automatically qualify for maximum council tax benefit. You can also check your eligibility by going to the Entitledto calculator.
- second adult rebate which may be available if another person on a low income lives with you but is not your partner. Your council tax may be higher because of their occupation as this may prevent you claiming the single person discount. The second adult rebate can be up to 25% of the council tax charge. Usually, you would claim the second adult rebate at the same time as council tax benefit and the council will give you the higher of the two rebates.
The one thing that is absolutely clear is that council tax is a tax which has to be constantly monitored because, as we have explained, changes of circumstances can affect it greatly. A final reminder of things to keep under review is details of:
- your 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 you are prevented from occupying the property yourself due to a range of circumstances
- whether there are occupiers with a disability
- the state and condition of the property.
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.
1. A resident freeholder, so, for owner-occupied property, the owner is liable
2. A resident leaseholder, including ‘assured tenants’
3. A resident statutory or secure tenant that is one whose landlord is a public body or local authority
4. A resident licensee
5. 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.
Business rates (or non-domestic rates) are a means by which businesses and other occupiers of non-domestic property indirectly contribute towards the costs of the services provided by local councils. The income from all business rates is paid into a national pool and redistributed between local councils in proportion to their adult population. Domestic properties are subject to council tax.
The Department for Communities and Local Government is responsible for business rates policy in England (or the Welsh Assembly in Wales), with the Valuation Office (an agency of HMRC) in England and Wales, being responsible for assessing rateable values that are the basis for working out rates bills. 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.
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.In both England and Wales small business rates relief can give up to 100% relief from the rates charge and has been extended to 30 September 2012.
In simple terms your rates bill is your rateable value times the multiplier, minus any reliefs.
The business rates multiplier for 2011/12 in England (excluding the City of London) is 43.3% (42.6% for small businesses) and 42.8% 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 Valuation Office 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 Valuation Office 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.
The Valuation Office 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.
Example 1
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.
Valuation Office 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.
Example 2
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.
Valuation Office assessment: The whole of the dwelling is domestic property, and should be banded for council tax.
Scotland
Where there are differences for council tax and business rates between Scotland and England and Wales these are noted below.
Council Tax
Valuation
As in England, 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 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. 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.
