Is business rates
tax deductible?

Yes. Business rates and water rates for business premises are allowable expenses (GOV.UK). They go in rent, rates, power and insurance costs, box 21 on the full self-employment pages (SA103F notes).

If your business occupies premises, business rates are usually one of the fixed costs you cannot avoid, and they are fully allowable. Many small businesses pay reduced rates through relief, in which case what you deduct is the amount you actually pay.

Is business rates tax deductible?

The HMRC rule

Rent, business and water rates, utility bills, property insurance and security for business premises are allowable. The rule comes from Office, property and equipment, Self-employment (full) notes, SA103F.

GOV.UK lists business and water rates among the rent, rates, power and insurance costs a sole trader can claim (office, property and equipment). The SA103F notes put them in box 21 and say the non-business part, or private use of business premises, is disallowable (SA103F notes).

When you can claim it

• Business rates on a shop, office, workshop or unit used for the business.
• Water and sewerage rates for business premises.
• Rates for storage or a stall pitch where they are charged separately.
• Rates on a part of your home that has been assessed for business rates.

When you cannot

• Rates on the private part of premises that are also your home.
• Council Tax on your home, except the share for working from home.
• Penalties or court costs for late payment of rates.
• Rates on premises held as an investment rather than used in the trade.

What to claim instead

If your premises qualify for small business rate relief, you may pay little or nothing; you deduct whatever you actually pay. If you work from home, your home pays Council Tax, not business rates, and you claim a share of Council Tax instead.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For business rates, the deciding rule is rent, rates, power and insurance for business premises: rent, business and water rates, utility bills, property insurance and security for business premises are allowable.

Worked example: a café owner

A café owner's business rates bill is £3,400 after relief, and water rates are £860. Both are allowable in full: £4,260. The flat above the café, where she lives, has its own Council Tax, which is personal.

Small business rate relief

Small business rate relief, and other reliefs set by the local council, can reduce the bill substantially, sometimes to nothing. The tax deduction follows the bill: you deduct what you pay. Check each year that any relief has been applied, because missing relief costs more than the tax deduction saves.

Business rates on part of a home

A room used occasionally for business does not normally attract business rates. Where part of a home has been converted and used exclusively for business, such as a treatment room with its own entrance, it may be assessed separately. If it is, those rates are an allowable business cost, and the rest of the home stays on Council Tax.

Paying monthly

Most councils let you pay business rates in monthly instalments. On the cash basis, each instalment counts when paid; on traditional accounting, the charge is spread across the rate year. Either way, the total for the year is allowable.

Premises shared with others

If you share premises and split the rates bill, deduct your share. If you sublet part of your premises to another business, the rent you receive is income and your full rates bill remains your cost, unless the arrangement passes the rates on.

Where it goes

Business rates and water rates go in rent, rates, power and insurance costs, box 21, and the premises running costs category of a Making Tax Digital update. If your accounts include rates on private premises, add that part back in box 36.

Rates included in rent or recharged

In some lets, particularly serviced offices, shared workshops and market stalls, the landlord pays the business rates and includes them in the rent or service charge, or recharges them separately. You cannot deduct rates you do not pay directly, but the rent, service charge or recharge that covers them is allowable as a premises cost, so the relief arrives either way. Keep the invoices that show what the payment covers, because a service charge can also include items such as cleaning, insurance or security that belong in the same category.

Moving premises part way through the year

If you move premises, you are liable for rates on each property for the days you occupy it, and councils issue closing and opening bills. Both are allowable for the periods the premises were used for the business. A final bill arriving after you have left still relates to the business, so claim it when paid on the cash basis. Rates on premises you have taken on but not yet started using can still be a business cost if the premises are held for the trade.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under rent, rates, power and insurance costs (SA103F box 21 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the rates bill and demand notices, any relief notices, and records of payment. For premises partly used as a home, keep the split you used.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming rates on the private part of mixed premises.
• Deducting penalties for late payment.
• Missing small business rate relief the premises qualify for.

Related expenses

This item sits in the rent, rates, power and insurance costs category, alongside council Tax, garden office, home and landlord insurance, mortgage interest, rent, service charges, solar panels and stamp Duty. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.