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What to do when you can't afford to pay your business rates
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What happens if I cannot afford business rates?
If you do not keep up with your business rates, local councils can take the following action against your company:
• Reminder letter sent to business
• Summons issued and costs will start to mount
• Liability order lodged to allow bailiff action
• Bailiffs instructed to recover outstanding balance
• Insolvency proceedings started against the company
Business rates are essentially a tax imposed on properties which are used for commercial as opposed to residential purposes. Business rates are enforced on a variety of units including retail units, warehouses, offices, bars and restaurants.
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There is not a set amount which is payable by every business; instead each property is individually assessed and given a ‘rateable value’ – it is this value which determines the amount charged. A property’s rateable value is based on its estimated open market rental value; therefore the higher the property’s value, the higher associated business rates will be. This is why properties in more desirable locations, such as retail units situated on prominent high streets, typically attract a large business rates valuation.
Please note that your rateable value is not the amount you will be required to pay. The rateable value is used to form part of a calculation which will work out the exact level of your business rates liability.
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If your company is insolvent you have a number of legal responsibilities that you must adhere to. Taking steps to protect creditors from further losses by contacting a licensed insolvency practitioner can help ensure you adhere to these duties.
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If you have reason to believe you are being charged an inflated amount for your business rates, there is a process in place which will allow you to challenge this. However, you must have a valid reason for believing you are being charged too much; simply not being able to afford to pay is not enough.
Start by checking other similar properties in your area; this can be done here. This tool can also be used if you would like to contest your assessment value. Remember that just because the property next door to you may have a lower rateable value, this does not necessarily mean that you have been assessed incorrectly. There could be a number of reasons behind the difference, for instance it could be that that property is significantly smaller, or lacks the parking spaces your property has. However, if you know the properties to be identical, then you may able to successfully challenge for a reduction.
There are a number of business rate relief schemes which could help cut the amount you have to pay should you qualify for them.
Firstly there is the small business rates relief programme. This exempts any property with a rateable value of less than £12,000 from business rates entirely. Tapered relief is then given to properties with a rateable value between £12,000 and £15,000.
Further measure were introduced as part of the 2018 Budget when the Chancellor announced that businesses with a rateable value of less than £51,000 would see their business rates bill slashed by a third for the next two years, which represents over an £8,000 saving for some. Businesses who already qualify for tapered relief through the small business rates scheme will be able to take advantage of this additional relief programme as well. This initiative is estimated to apply to 90% of all shops, restaurants, cafes, and bars, providing a much-needed financial boost to this distressed sector.
There are various other more niche rates relief schemes which are designed to help specific sectors. These include the rural rate relief as well as the charitable rate relief which applies to charities and amateur sports clubs.
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Business rates are administered by local councils, and they have the power to implement a variety of measures on companies which fail to pay on time. This typically follows the following process:
- Reminder letter – The first port of call will be issuing you with a reminder letter. You will usually be given a maximum of seven days to bring your account up to date and pay what you owe. If you fail to do this you may lose the right to pay your business rates in instalments and instead by asking you to pay the whole amount in one go immediately.
- Summons issued – Failure to respond to the reminder letter will lead to you being sent a summons informing you of the council’s intention to apply for a liability order by way of a court hearing. This is the stage at which you will begin to incur additional costs as any court fees, including that associated with issuing the summons, will be added on to the amount you owe.
- Liability order - If the hearing date arrives without payment being made then an application for a liability order will be lodged. Once issued this grants councils with additional powers to collect the outstanding debt.
- Bailiffs ordered – Following a liability order, bailiffs can be instructed to come to your commercial premises to collect the outstanding business rates debt. You will also be charged bailiffs’ fees accordingly.
- Insolvency proceedings – If bailiff action is unsuccessful the next step will be for the council to start insolvency proceedings against your company. This would involve applying for a winding up order to liquidate your business if it’s a limited company, or making you bankrupt if you’re a sole trader.
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If you are having problems paying your business rates, your first port of call should be getting in contact with your council. If you notify them of your inability to pay before you miss a payment, you stand a much better chance of being able to negotiate some form of plan with them going forwards. This may involve delaying a payment or clearing the amount you owe through a series of more manageable instalments.
If your financial problems are such that they are likely to cause you issues paying your business rates in future months, you need to seek expert help and advice from an insolvency practitioner. An insolvency practitioner will be able to discuss the range of options open to you and your business including:
- Financing – Introducing new funding into the business could help free up your cash flow and allow you to adhere to your financial commitments and obligations.
- Company Voluntary Arrangement (CVA) – A formal insolvency procedure which allows you to renegotiate with creditors and restructure your company’s debts.
- Creditors’ Voluntary Liquidation (CVL) – A closure option where a company director voluntarily chooses to liquidate their insolvent business.
Across a nationwide network of offices, Real Business Rescue provides company directors the help and guidance they need when dealing with a distressed business. With over 100 licensed insolvency practitioners we are perfectly placed to help whether you are struggling paying your business rates, HMRC, or any other creditor. Contact us today to arrange a no-obligation consultation.
Further Reading on I can’t afford to pay my business rates – what are my options?
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