Owning and operating a bed and breakfast (B&B) can be a rewarding venture, but it also comes with a range of legal and financial responsibilities. One of the most important factors to consider is business rates. Business rates are taxes that businesses must pay for using non-residential property, and for many B&B owners, the question arises: Do bed and breakfasts pay business rates?
In this article, we will explore what business rates are, how they apply to B&Bs, and the criteria for determining when and why a B&B may be liable to pay them. We’ll also touch on potential exemptions and reliefs available to B&B owners and provide guidance on how to calculate and assess business rates. By the end, B&B owners will have a clearer understanding of what they need to do to comply with business rate regulations.
Business Rates Overview
Business rates are a form of local taxation on non-residential properties. They are typically charged by local councils or authorities to businesses, including those operating from commercial properties such as shops, offices, and hotels. The money raised from business rates is used to fund local services such as waste collection, road maintenance, and other essential services in the area.
The business rates system in the UK applies to properties that are used for commercial purposes, meaning any property that is used for trade, commerce, or other business activities. For example, hotels, guesthouses, and B&Bs are considered commercial properties and may be subject to business rates depending on the scale of the business operations.
Criteria for Paying Business Rates
Whether or not a bed and breakfast is liable to pay business rates depends largely on the nature and scale of the business. There are several criteria that determine when a B&B will be liable for business rates:
1. Number of Rooms Available for Guests
One of the primary factors influencing whether a B&B must pay business rates is the number of rooms available for letting. If a property has more than six rooms available for paying guests, it is generally regarded as a commercial property, and business rates will likely apply.
However, the situation may differ if the B&B is more of a small-scale operation, such as a family home where letting rooms are incidental to the primary residential use of the property. For example, a B&B with just one or two rooms that are occasionally let out to guests might not be considered a full business and may not need to pay business rates.
2. Extent of Commercial Use
Even if a B&B has fewer than six rooms, it might still be subject to business rates if the extent of the commercial use of the property is significant. If the B&B operates as a fully commercial entity, with daily bookings, advertising, and business activities, then it may be considered a business, and business rates will apply. This is especially true if the property is being operated on a full-time basis rather than as a part-time or incidental income stream.
3. Primary Use of the Property
The primary use of the property also plays a role in determining liability. If the B&B is essentially a private home with an occasional room or two rented out to guests for short stays, and the property is not being operated as a dedicated commercial business, it may fall under the residential category, potentially exempt from business rates.
In these cases, the property might still be subject to council tax, which is the tax levied on residential properties. B&B owners should carefully consider how they market and use the property in order to determine whether business rates apply.
Dual Use Properties
Many B&Bs operate from properties that are used for both residential and commercial purposes. In these cases, the property may be subject to both business rates and council tax. The division between the business and residential use will depend on factors such as the percentage of the property used for commercial purposes and how the property is being marketed.
For example, if a homeowner rents out several rooms to guests but still lives in part of the house, the areas used for business purposes may be assessed separately for business rates, while the residential portion of the property will still be liable for council tax.
In these situations, it is important to understand that each part of the property may be subject to different tax rates or assessments. The residential part of the home will generally be subject to council tax, while the commercial part of the home (i.e., the B&B rooms) may be subject to business rates.
Exemptions and Reliefs
B&B owners may be eligible for various exemptions or reliefs that can reduce or even eliminate their liability to pay business rates. Some of the key exemptions and reliefs include:
Small Business Rate Relief (SBRR)
If a B&B operates from a property with a rateable value (the value assigned to the property for business rates purposes) below a certain threshold, it may qualify for Small Business Rate Relief (SBRR). This is a government scheme designed to help small businesses by offering reductions on business rates.
For properties with a rateable value below £12,000 (as of 2025), the B&B may be eligible for 100% relief. If the rateable value is between £12,001 and £15,000, the relief is gradually phased out. This can make a significant difference in reducing the business rates burden for smaller B&Bs.
Rural Rate Relief
If your B&B is located in a rural area, you may be eligible for Rural Rate Relief, which provides a discount on business rates for certain types of businesses, including B&Bs, that are located in rural communities. To qualify, the property must meet specific criteria, such as being in a rural area with a population under a certain size.
Other Reliefs
In some cases, B&B owners may qualify for other forms of relief or exemptions depending on the specifics of their business and property. For example, properties used for charitable purposes or properties that are vacant for an extended period may be eligible for certain reliefs.
Consulting Local Authorities
It is important for B&B owners to consult with their local authority or valuation office to determine whether they are eligible for any exemptions or reliefs. The rules can vary depending on location, and local authorities can provide the most up-to-date and specific guidance for your property.
Calculation of Business Rates
The amount of business rates a B&B must pay is based on its rateable value, which is determined by the Valuation Office Agency (VOA). The rateable value is an estimate of the annual rental value of the property, based on factors such as location, size, and usage.
Once the rateable value is determined, business rates are calculated by applying a “multiplier” to the rateable value. The multiplier is set annually by the government and is used to determine the amount of business rates due.
For example, if the rateable value of a B&B is £10,000 and the current multiplier is 0.5, the business rates payable would be £5,000.
Legal and Financial Implications
It is important for B&B owners to understand that failure to pay business rates can lead to legal and financial consequences. Unpaid business rates can result in penalties, interest, or even legal action. In extreme cases, the local authority may take steps to recover unpaid rates, such as seizing assets or property.
Additionally, if a B&B owner fails to register their property for business rates when required, they could face fines or backdated charges. It is always better to stay compliant with business rate regulations and seek professional advice if necessary.
Steps to Determine Liability
If you are unsure whether your B&B is liable for business rates, there are several steps you can take to determine your liability:
Contact the Valuation Office Agency (VOA): The VOA can help you understand the rateable value of your property and whether it is subject to business rates. You can search for your property online or contact the VOA for further details.
Check the Extent of Commercial Use: Assess how much of your property is being used for commercial purposes. If you are running a full-time B&B business, it is more likely that business rates will apply.
Seek Professional Advice: If you are still unsure, consider seeking advice from a property consultant or tax professional. They can help you understand your obligations and ensure that you are paying the correct amount of business rates.
Consult Your Local Authority: Local authorities have the final say on business rate assessments. They can provide clarity on whether your B&B qualifies for any exemptions or reliefs.
Conclusion
Determining whether a bed and breakfast must pay business rates can be complex, but understanding the criteria and processes involved is crucial for owners. B&Bs that operate on a commercial scale or have more than six rooms for guests will likely be liable for business rates. However, small-scale B&Bs and those with residential use may be exempt or eligible for relief.
To ensure compliance with business rate regulations and avoid penalties, B&B owners should consult with local authorities or valuation offices, calculate their rateable value, and consider available exemptions or reliefs. Taking these steps will help maintain a successful and legally compliant business while ensuring that your B&B remains financially sustainable.
