For companies operating from commercial premises, business rates are a major expense. Business rates are taxes paid on premises used for non-dwelling purposes and the funds raised help provide services from your local council including road maintenance, disposal of refuse and public protection. However, for the majority of businesses, particularly SMEs, they can find it difficult to pay business rates. A downturn in the economy, a non-budgeted or unexpected invoice, or payment challenges can cause businesses to struggle to pay this outgoing.
What will happen if you find you cannot pay your business rates? Below, we will explain the penalties, options available, and things you can put in place to manage this financial difficulty effectively.
Consequences of Failure to Pay Business Rates
Failure to pay your business rates can start a chain reaction of legal and financial penalties. Below is what happens if you miss a payment:
Reminder Notice
If you miss a business rates payment, your local council will issue a reminder notice. This will give you seven days in which to pay the sum due. If you pay within these seven days, you can then continue with your normal instalment arrangement. If you fail to pay, more severe action will be taken.
The notice reminder will include the outstanding amount and when it is due for payment. If you disregard the notice reminder, the council may advance further by issuing a final notice that abolishes the payment by instalment option and asks the entire amount in full right away.
Final Notice and Court Summons
If you repeatedly do not pay, the council will issue a final notice. This loses your right to pay by instalments and you must pay the full amount in one payment. If you still default, the council may apply to the magistrates’ court for a liability order.
A liability order is a court document that confirms you owe business rates. The hearing at court will typically be quite straightforward, and councils hardly ever lose these. You will receive notice of the date of the hearing, but even if you do not attend, the court can proceed in your absence.
This will also add extra charges to your remaining balance. Your details can be passed on to enforcement agents (bailiffs) or further recovery action taken by the council.
3. Further Expenses and Costs
After a liability order has been obtained, additional expenses added to your debt, for example: court fees, enforcement fees, etc. These expenses can add up very quickly and make repaying your debt even harder. Bailiff fees include:
- £75 compliance fee (for the issuing of enforcement notices).
- £235 enforcement fee (issued if they visit your address).
- A fee of £110 for the sale/disposal stage and more if goods are removed.
The Council Commencing Legal Action After a liability order is obtained, the Council have some additional methods of recovering the money rather than just the court system, as follows:
1. Bailiff (Enforcement Agent) Action
The council can instruct enforcement agents (bailiffs) to recover the debt. Bailiffs can visit your business premises to remove goods which can be sold to recover the debt. If a bailiff calls at your premises:
- You don’t have to disregard their letters or visits.
- You can settle on a payment plan before goods are removed.
- If they remove goods from your premises, you might pay more due to enforcement fees.
If the debt is not settled, they can lawfully remove office equipment, machinery, and stock to recover the debt.
2. Bank Account or Wage Deductions
If your company is either a partnership or sole trader, the council has the power to ask for an attachment of earnings order so they can make direct deductions from your wages. They can, with limited companies, request deductions against your business’s bank account.
In extreme circumstances, the council can apply for a third-party debt order by which they are allowed to freeze funds in your business bank account until the debt is settled.
3. Insolvency Proceedings
In extreme cases, councils can take the company to court to wind up a company (compulsory liquidation) in case of unpaid business rates. In case a winding-up petition is filed, assets of your company can be realized to repay debts, and you may be stopped from running a new business.
If a director is found to have wilfully avoided paying business rates but still traded, then they can be held personally responsible and barred from being a future company director.
What To Do If You Can’t Pay Business Rates?
If you are struggling to pay your business rates, the best thing to do is to act sooner rather than later, as the penalties can be severe. You have the following options:
1. Contact Your Local Council,
Once you realise you are struggling, the first call you should make is to your local council, as the majority of councils will want to discuss an alternative arrangement and have.
- Payment extensions.
- Payment spread over a longer period,
- Temporary reductions for companies in difficult financial situations.
If you act quickly enough, there may be no need for enforcement action or any charges.
2. Apply For Business Rates Relief
Depending upon your type of business, and the specific situational details, there are various relief schemes available:
- Small Business Rate Relief (SBRR): If your rateable value is not greater than a threshold value, you will pay either a lesser rate or no charge.
- Hardship relief: If your business has experienced genuine levels of hardship, you can apply for discretionary relief.
- Retail, Hospitality and Leisure relief: Businesses that trade at a certain level in those sectors can receive temporary discounts on rates.
- Charitable relief: Charities that occupy premises for charitable purposes can qualify for relief of up to 80%.
Relief reduces your business rates and takes away cash flow concern.
3. Obtain Expert Input.
If you have difficulty finding a resolution, you might like to speak to a professional. A professional can assess your financial circumstances and advise you on suitable plans of action.which offer bespoke unpaid business rates arrangements to help businesses manage business rates issues.
4. Company Voluntary Arrangement (CVA)
is a legal agreement between your company and its creditors, which may include the council, to repay debts over a period of time agreed. A CVA gives your company some protection against enforcement action and could also allow your company to carry on trading.
5. Look into financing options
If cash flow problems are causing you issues with payments, you may want to look into business financing options such as your
- overdraft and borrowing against your business.
- Invoicing financing (borrowing against unpaid invoices)
- Government grants and schemes
Conclusion
The non-payment of business rates can lead to serious consequences including visits from enforcement officers, court action and even compulsory winding up. But there is lots of help available for businesses in financial distress. Your local council, an application for business rate relief and professional support, all go a long way to dealing with financial difficulties.
If your business rate bills are worrying you, don’t wait until an enforcement officer takes action. Take advice and take action now, before it is too late.