Business rates

Conditions

• Business rates are an allowable expense for traders and companies occupying commercial premises. GOV.UK's self-employed expenses guidance explicitly lists 'business rates' alongside heating and lighting as an allowable cost (updated November 2024), and HMRC's Business Income Manual (BIM46801) confirms that business rates are among the deductible expenses for premises occupied by a trader.
• Business rates are levied by the local authority on commercial and business properties based on a rateable value. They are separate from Council Tax, which applies to domestic properties. If you work from home, your home is subject to Council Tax, not business rates — proportionate Council Tax can be claimed through the home-office provisions.
• Small business rate relief (SBRR) is administered by your local authority and can reduce or eliminate the rates bill for qualifying properties, primarily based on rateable value. Qualifying for and applying SBRR is worth doing: if your bill is reduced to zero, there is simply no expense to claim. Whatever amount you actually pay is allowable.
• If business rates arise on mixed-use premises — part commercial, part residential — the rates on the commercial portion are deductible, but the domestic element is not (Council Tax or domestic rates apply to the residential part and follow the home-office rules).
• Employees do not pay business rates and cannot claim them as a personal tax deduction. Business rates are the liability of the occupier of the premises — the employer.

Common mistakes

• Confusing business rates with Council Tax — they are different levies. Working from home attracts Council Tax on the domestic portion, which is apportioned under the home-office rules, not claimed here.
• Not applying for small business rate relief and paying more than necessary — relief can be applied for retrospectively in many cases.
• Treating penalty surcharges or interest on late payment of rates as an allowable expense — penalties are not deductible.

What to keep

• Business rates demand notices from the local authority, showing the rateable value, relief applied and 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. The annual business rates bill, after small business rate relief, is £1,200. She pays it in two instalments and deducts the £1,200 as an allowable business expense.

Frequently asked

Related allowances