Business Rates & Mezzanine Floors: Do You Pay Rates On A Mezzanine?
Business rates, a familiar topic to many UK business owners, represent one of the primary overhead costs in commercial operations. As businesses grow and adapt, the physical space they occupy often needs to evolve with them.
Enter the mezzanine floor, a popular solution for maximising space. But, does adding one affect your business rates?
In short, it depends, based on a range of factors. Read on as we answer this common question and explore the topic in more detail
Understanding Mezzanine Floors
A mezzanine floor is an intermediate floor within a building that doesn't extend over the entire floor space. It's typically open and constructed between the ground floor and the next complete story.
Commercially, mezzanines are often used in places such as warehouses for additional storage or to add facilities, in factories for extra workspace, or in retail environments to showcase more products.
In some cases, the process of installing mezzanine floors means that they can be removed, adjusted, or expanded at a later stage. They can also in some cases be moved to other premises entirely.
Mezzanine Floors and Business Rates
The relationship between mezzanine floors and business rates is largely contingent upon specific circumstances surrounding the use and construction of the mezzanine.
The addition of a mezzanine floor can certainly alter the rateable value of a property, but it's essential to understand the nuances to anticipate potential changes in business rates when assessing the viability of an installation.
Use of Space
The function of the mezzanine plays a pivotal role on business rates. If the new floor space is used exclusively for storage, such as a warehouse mezzanine, it might not impact the rateable value as significantly as if it were transformed into active retail or workspace. For instance, a floor providing additional seating in a restaurant or extra display area when used as a retail mezzanine is more likely to lead to an increased rateable value.
Permanence of the Structure
The VOA (Valuation Office Agency) often looks at the permanence of the addition. Temporary mezzanine structures that can be easily dismantled and don't significantly alter the building's core structure may not influence the rateable value as much as permanent, integrated structures would.
Size and Scale
A small mezzanine occupying a minor section of the premises may have a negligible effect on business rates, whereas a larger, expansive mezzanine might result in a more noticeable change in the rateable value.
Access and Amenities
If the mezzanine floor includes added facilities, such as restrooms, lifts, or escalators, it could increase the overall utility and value of the property, potentially impacting the business rates.
External Changes
Even if the mezzanine is internal, any external modifications made to support it, such as new windows or entranceways, can be factors in recalculating business rates.
Economic Impact
The potential revenue generation from the added space (directly or indirectly) can also play into its valuation. For example, if the mezzanine floor leads to increased customer footfall or storage capacity that boosts sales, this could be reflected in an adjusted rateable value.
Implications for Businesses
Businesses should be proactive in keeping records of any modifications made and their intended purposes. It's not uncommon for ratepayers to challenge decisions made by the VOA, especially if they believe the new rateable value doesn't accurately reflect the property's true rental value. Having comprehensive documentation can aid in such discussions or appeals.
Furthermore, it's essential to remember that while the VOA sets the rateable value, the actual business rates bill is determined by multiplying this value by a 'multiplier' set by the government. As such, even minor adjustments in rateable value can lead to noticeable changes in the actual business rates payable.
Understanding Business Rates in the UK
Business rates, sometimes colloquially referred to as "the rates," are a type of tax levied on non-domestic properties in the UK. These properties can range from shops and offices to factories and warehouses.
Essentially, if it's a space used for non-residential purposes, it's likely subject to business rates. Here's a deeper dive into understanding the intricacies of business rates:
Origin and Purpose
Business rates trace their origins back centuries, evolving over time to adapt to the changing face of commerce and public finance needs. Their primary purpose is to fund local services that benefit the business community.
Rateable Value
At the heart of business rates is the 'rateable value.' The VOA estimates this value, which essentially gauges how much a given property could be rented out for on the open market. This assessment takes into account factors such as size, location, and usage of the property.
Setting the Multiplier
Once the rateable value is established, it's multiplied by a figure known as the 'multiplier' or 'poundage rate.' Set annually by the government, the multiplier determines the percentage of the rateable value that the business must pay in rates.
There are often two multipliers: a standard one and a small business one, with the latter offering reduced rates to eligible smaller enterprises.
Reliefs and Reductions
The UK government recognizes that, in certain circumstances, businesses may need some relief from these rates. As such, there are several reliefs available, including Small Business Rate Relief, Rural Rate Relief, and Charitable Rate Relief, among others. Each relief has its criteria, and eligibility can depend on factors such as the property's location, its usage, and the nature of the business.
Revaluation and Adjustments
Property markets and commercial landscapes evolve. To ensure fairness and accuracy, the VOA periodically re-evaluates properties, typically every five years. However, if there are significant changes to a property or the local area between these revaluations, businesses can request an interim reassessment.
Payment and Collection
Business rates are collected by local councils. The funds collected are then split between the local council and a central pot, which is redistributed among various councils. How a business pays its rates can vary; while many opt for monthly instalments, other payment plans might be available.
Examples Of The Impact Of A Mezzanine On Rates
Example 1
A clothing store in Manchester adds a mezzanine floor to display additional stock. Post-installation, their business rates increased due to the expanded retail space.
Example 2
A warehouse in Leeds adds a mezzanine solely for storage without significant changes to its external appearance or use. Upon completion of the project, their rateable value remained relatively unaffected.
ROI on a Mezzanine Floor: Weighing Costs and Benefits
When evaluating the addition of a mezzanine floor, businesses must consider not just the potential increase in business rates, but also the overall Return on Investment (ROI). The ROI encapsulates the long-term value and benefits that the additional space brings in relation to its costs.
Cost-Effective Expansion
Mezzanine floors stand out as one of the most cost-effective methods of expanding floor space. Rather than relocating to a larger property or constructing a new building – both of which can be exceptionally costly and disruptive – installing a mezzanine allows businesses to utilise vertical space within their existing premises.
The construction of a mezzanine is typically much faster and less invasive than major renovations or relocations, which means they are a relatively fast and low-cost solution to the need for additional space.
Factors Boosting ROI
While offering one of the most cost effective ways to increase commercial space, mezzanines offer a range of benefits that help to deliver a positive ROI on their use.
Increased Productivity
With more space, businesses can streamline operations, reduce clutter, and potentially increase production or sales, leading to higher revenues. Mezzanines can also be used as offices, or to introduce automation to a warehouse to further increase productivity.
Flexibility
Mezzanines can be tailored to specific needs, be it for storage, workspace, or retail. This bespoke nature ensures that the space is optimised for its intended purpose.
Property Value
Beyond business rates, a well-constructed mezzanine can increase the overall value of a property, making it a more attractive asset if the business ever decides to relocate or lease the space.
Maximised Space Utilisation
Rather than paying rent or a mortgage on unused vertical space, businesses can transform it into a functional area that contributes to the bottom line.
Considering the Business Rates
While the addition of a mezzanine might lead to increased business rates due to a higher rateable value, this cost is often dwarfed by the financial benefits it brings. When viewed as a component of the total investment, the potential uptick in rates becomes just one factor in a broader financial landscape.
A Cost effective Option For Expanding Your Business
It's imperative to view the installation of a mezzanine floor as a strategic investment rather than a mere cost. By focusing on the long-term financial and operational benefits, businesses can realise that even with a potential increase in business rates, the overall ROI from a mezzanine floor is often overwhelmingly positive, making it a sound choice for scaling and enhancing productivity.
Tips for Businesses Considering a Mezzanine Floor
For businesses weighing the pros and cons of installing a mezzanine floor, understanding the broader picture – particularly the financial and regulatory landscape – is paramount.
Cost Implications & Savings
Initial Investment
While mezzanine floors are a cost-effective way to add space, there's still an upfront cost. The cost of a mezzanine floor can vary based on factors such as size, design complexity, and the need for additional features like fire protection, lifts, or staircases.
Operational Savings
Over time, the added space can lead to operational cost savings. For instance, better storage might reduce inventory losses, or an expanded sales floor could boost revenue. Weigh these against the initial investment.
Utility Costs
While a mezzanine does not usually increase the internal volume of a building, it does deliver increased space that may be used for offices, storage, production, or customer interaction. Consider potential rises in heating, cooling, and lighting expenses in operating these spaces. However, energy-efficient designs and technologies are available to help mitigate these costs.
Future-Proofing
Investing a bit more initially for a versatile design can save future modification costs. Think modular designs that can adapt to changing business needs.
Efficiency Improvements
Workflow Optimisation
Use the new space to streamline operations. For warehouses, this could mean a more efficient inventory system. For retail, it might translate to improved customer flow and experience.
Technology Integration
Consider integrating tech solutions in your mezzanine design. Automated inventory systems or modern POS systems can further boost efficiency.
Employee Efficiency
An organised workspace can significantly improve employee productivity and morale. The additional space can reduce clutter, making tasks quicker and more straightforward.
Regulations and Compliance
Building Regulations
Before installation, ensure the mezzanine design complies with applicable building regulations. This includes standards for safety exits, fire suppression, and load-bearing capacities.
Planning Permissions
While most mezzanines can be installed without planning permission, depending on its size and use, some floors may require it. Always check with local authorities before proceeding.
Safety Standards
Regardless of its intended use, safety should be paramount. Ensure railings, staircases, and the floor itself adhere to safety standards to prevent accidents.
Accessibility
If the mezzanine will be accessible to the public or has employees regularly working on it, it must comply with accessibility standards, ensuring it's usable for all, including those with disabilities.
Be Fully Informed When Planning Your Mezzanine
The decision to add a mezzanine floor in your commercial space should be well-informed. While it offers a range of operational advantages, the potential change in business rates is also an important factor to consider.
However with careful planning and due diligence, businesses can navigate this decision effectively and make choices that align with their growth and operational needs.
At Avanta we work with our clients at every step of the project, from initial design and consultation through to installation and final handover. This means that our experienced team is on hand to provide all the necessary information regarding business rates, and ensure all building regulations and planning permission requirements are met as part of a comprehensive turnkey solution.
If you’re thinking about adding a mezzanine floor to your commercial space, get in touch with Avanta to find out more about our services and the options available.