Business rates

Conditions

1. HMRC's manual says business rates are payable in respect of non-domestic premises and are therefore usually an allowable deduction in computing trading profits or property income (BIM46835), and lists business rates among its examples of allowable expenses for premises occupied for the trade (BIM46801). GOV.UK's self-employed expenses guidance lists business and water rates among the costs you can claim.
2. If part of the premises is used for domestic and part for non-domestic purposes, the business rates charge is limited to the non-domestic part. If, exceptionally, the premises, or those parts of the premises, chargeable to business rates are in fact used for non-business purposes, a proportion of the expenditure should be disallowed (BIM46835).
3. Sole trader: no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade, with an exception for any identifiable part or identifiable proportion incurred wholly and exclusively for the trade (section 34 ITTOIA 2005). Limited company: the same rules are in section 54 CTA 2009.
4. Business rates are not Council Tax. Council Tax is payable in respect of chargeable dwellings and excludes non-domestic (commercial) property, which is covered by business rates (BIM46840). HMRC's manual says a home in which a trader sets aside a room as an office is likely to attract only a Council Tax charge, and that if business use is established the appropriate proportion of the Council Tax may be allowed (BIM46840). The home-office entry covers that.
5. Working from home: GOV.UK says you do not usually have to pay business rates for home-based businesses if you use a small part of your home for your business, for example a bedroom as an office, or sell goods by post. You may need to pay business rates as well as Council Tax if your property is part business and part domestic, you sell goods or services to people who visit your property, you employ other people to work at your property, or you have made changes to your home for your business. GOV.UK says to contact the Valuation Office to find out if you should be paying business rates; in Scotland, your local assessor, and in Northern Ireland, Land & Property Services.
6. Rates relief: GOV.UK says you may be able to get business rates relief from your local council to reduce your bill, that this is sometimes automatic but you may need to apply, and that certain properties are exempt from business rates. Business rates are handled differently if your property is in Scotland or Northern Ireland. Relief reduces the bill, so the cost you deduct is the bill after relief.
7. Employee: there is no specific relief for business rates. An employee's general deduction requires that the employee is obliged to incur and pay the amount as holder of the employment, and that it is incurred wholly, exclusively and necessarily in the performance of the duties of the employment (section 336 ITEPA 2003). Where working at home leads to a liability for business rates, HMRC says the additional cost can be included in the household expenses an employer can meet or reimburse as an exempt payment under homeworking arrangements (EIM01474). An employee cannot deduct them unreimbursed: from 6 April 2026 onwards a deduction from earnings is no longer permitted for an employee's additional household expenses (EIM32759, section 360B ITEPA 2003).

Common mistakes

• Confusing business rates with Council Tax. Council Tax is payable in respect of chargeable dwellings, and non-domestic property is covered by business rates (BIM46840); Council Tax on a home used for work is a home-office question.
• Deducting the whole rates bill where part of the premises charged to business rates is in fact used for non-business purposes — a proportion should be disallowed (BIM46835).
• Assuming that using a bedroom at home as an office makes you liable for business rates. GOV.UK says you do not usually have to pay business rates for a home-based business that uses a small part of the home.

What to keep

• Business rates bills, showing the rateable value, any relief applied and the amount due.
• Payment records confirming amounts paid.
• Correspondence confirming any relief granted.

Real-world example

A sole trader runs a small pottery workshop in a rented unit on an industrial estate and uses it only for her business. Her business rates bill for the year, after rates relief, is £1,200, which she pays in two instalments. Business rates are usually an allowable deduction in computing trading profits (BIM46835), so she deducts the £1,200.

Frequently asked