This is a fast-moving issue and should be read as correct at the date of publication (30.04.20).

The Small Business Grant Scheme has been introduced to support businesses struggling due to the coronavirus. This scheme operates in England and provides a £10,000 grant for businesses that are eligible for the already existing small business rate relief.  

Many small businesses are not liable for business rates because they don’t occupy a ‘hereditament’ (a property on the rating list which is liable for business rates). These businesses can’t access the new grant scheme. 

This Insight sets out the technical background to business rates and valuation, to explain why some small businesses can and can’t access the scheme. 

Eligibility for the small business grant scheme 

Business rates are a tax on non-domestic property. The annual rate bill for a property is calculated by multiplying its rateable value by the national (England-wide) multiplier. Thus a property with a rateable value of £100,000, with a multiplier of 50.3p, would pay £50,300 per year.  

To be eligible for the small business grant scheme, a business must be eligible for small business rate relief.  

In England, businesses that are eligible for small business rate relief are also eligible for the £10,000 Small Business Grant scheme. Small business rate relief is available on one property per business. It is calculated as follows: 

  • Properties with a rateable value of £12,000 or below are entitled to 100% business rates relief. 
  • Properties with a rateable value of £12,001 to £15,000 are entitled to a tapering discount from 0% to 100%. This is on the basis of 1% relief for every £30 of rateable value. 

Businesses with more than one property are only eligible for small business rate relief if their additional property or properties all have rateable values of under £2,900, and the total rateable value of all their properties does not exceed £19,999 (£27,999 in London).  

A business can only be eligible for small business rate relief if it is liable to pay business rates on a property that it occupies. If a business is not liable for business rates, it cannot be eligible for relief – and therefore it cannot be eligible for the small business grant scheme.  

What about sub-tenants? 

A business can be based within a ‘hereditament’, but not liable to pay business rates. One example of this is where a commercial tenant has let a small part of a property to a sub-tenant, but that part of the property is not separately recorded on the rating list as a ‘hereditament’. Where this is the case, the sub-tenant will not be separately liable for business rates.  

This is a relatively unusual, but legitimate, scenario. The Valuation Office Agency (VOA) is responsible for determining what constitutes a property for business rate purposes. It is not required to identify a new property automatically wherever a sub-tenancy exists.   

This situation can also arise in other types of property such as caravan parks, serviced offices, or retail arcades. Even if these might ostensibly be ‘occupied’ by multiple individuals or businesses, the VOA’s rating list may record the caravan park or retail arcade as a single ‘hereditament’. The landlord would be recorded as being in ‘paramount occupation’ of the property and thus would be liable for the business rate bill. In that scenario, single caravans, single office units, or small retail units, would not be eligible for the small business grant scheme. 

What about those ‘paying rates to the landlord’? 

Businesses that are sub-tenants can sometimes claim they are “paying business rates to the landlord.” However, in law, this type of arrangement comprises an additional rental payment, or consideration, forming part of the sub-tenancy.   

Paying business rates in this way would not bring a sub-tenant within the business rate system.  

By the same token, if the main tenant of this type of property were to obtain a small business grant, the sub-tenant would have no right to claim a share of the grant.  

Why does the business rates system not take account of some property or rental arrangements?  

Some technical detail around valuation is required to explain this. 

The VOA is responsible for valuing all non-domestic property in England and Wales. This is done at a ‘revaluation’, the most recent of which took effect in April 2017.  

A critical element of property valuation is determining what constitutes a separate unit of property for valuation purposes. This is known as ‘identification of the hereditament.’ The VOA must decide whether, for instance, a small commercial building consists of one property or multiple properties. It must do this in line with case law.  

Businesses that are unsure whether or not their property forms a separate ‘hereditament’ can check the rating list, by entering their postcode.  

The person or company in ‘occupation’ is liable 

Once the VOA has identified the property, the billing authority (the district or unitary council) must identify the person or company ‘in occupation’ of the property. This decision must be taken in line with case law. This person or company is liable for the business rates bill.  

The billing authority will then write to the occupier for payment.  

Do local authorities have any discretion when applying the grant scheme? 

The small business grant scheme is entirely paid for by the Government.  

There is nothing in principle to prevent a local authority from giving grant funding to a business that did not meet the eligibility criteria. However, the local authority would need to meet the cost, as the Government would not reimburse it.  

Reports during April 2020 indicate that local authorities are currently anticipating significant financial shortfalls in 2020-21, and the sector continues to seek additional Government support.  

Further reading 

About the author: Mark Sandford specialises in local government and devolution in England at the House of Commons Library.

This Insight was updated on 01.05.20 to remove the sentence: ‘If a property is empty, the owner is liable.’ This originally appeared under the section The person or company in ‘occupation’ is liable.