Changes to business rates – are they fair?

On 1 April 2017, the amount that businesses have to pay in rates will change. This will reflect a revaluation of premises carried out by the government for the first time in seven years.

In 2015 the government launched a wide-ranging review of national business rates designed to pave the way for changes to how businesses across England pay the tax. The outcome of this review was to implement changes for businesses, particularly smaller ones, coming into effect from April 2017.

Overview of business rates

Business rates are a tax on most non-domestic properties. These include:

  • Shops
  • Restaurants
  • Offices
  • Pubs
  • Warehouses
  • Factories

Certain properties are exempt from paying business rates, such as farms and places of worship.

The amount businesses pay is worked out based on the property’s ‘rateable value’.  This is the amount of annual rent that could be charged on the premises, currently based on an estimate from 2008 by the Valuation Office Agency (VOA). This value is then combined with a multiplier, set by the central government, to determine the final bill. The rates bill can be reduced if your property is eligible for business rates relief.

Small Business Rate Relief and current calculations

Businesses are eligible for small business rate relief if:

  • The business only uses one property; and
  • The property’s rateable value is less than £12,000

Currently, properties with a rateable value of £6,000 or less don’t pay business rates. For properties with a rateable value between £6,000 and £12,000, the rate of relief tapers down gradually from 100% to 0%. If your business has a property with a rateable value below £18,000 (or £25,500 in London), it is considered a small business.

The current multipliers set by the government are shown below.

table

 

 

 

 

April 2017 changes

  • The new rateable values, set by the VOA, were released on 30 September 2016. They are based on the rental value of properties on 1 April 2015 and will be used to calculate business rate bills from 1 April 2017.
  • The small business rate relief will double, meaning businesses with a property with a rateable value of £12,000 or less will pay no business rates.
  • Properties with a rateable value between £12,000-£15,000 will receive gradual relief.
  • The threshold for what constitutes a small business will increase to a rateable value of £51,000.

The updated multipliers for 2017-18 are shown below:

table2

 

 

 

 

What are the issues?

Former Chancellor George Osborne said that by raising the relief threshold to £15,000, it would take nearly 600,000 small businesses out of paying business rates entirely. “This is significant and is very, very welcome, given that SMEs account for some 50% of private sector value added in the economy and business rates are often a large outlay”.

The current government has also defended the reforms. Chief Secretary to the Treasury, David Gauke, said: “Across the country as a whole, far more businesses are benefiting from these changes than are losing out.”

However, there are concerns that many businesses will have to pay substantially more. In London, bills will rise an average 11% this year.  Furthermore, the changes include a clause that could prevent firms appealing against rate rises, even if firms can prove they are wrong.

Some of the UK’s largest employers’ groups united in condemning the government’s changes to business rates in England. Thirteen of them have written a letter to the government calling for it to be dropped. Signatories to the letter include the British Retail Consortium, the CBI, the Federation of Small Businesses, Revo, the Association of Convenience Stores, the British Chambers of Commerce and the British Property Federation.

Speaking to the House of Commons, Communities Secretary Sajid Javid said “It’s clear to me that more needs to be done to level the playing field and make the system fairer. We expect to be in a position to make an announcement at the time of the Budget”.

The ACCA’s response

Chas Roy-Chowdhury, head of tax at ACCA, says: “Linking the business rates regime to current property valuations—as outlined in the government’s Business tax roadmap — may seem at first glance to be a sensible proposition but actually requires careful consideration particularly given that rateable values have not been adjusted in almost a decade. The government should ensure that this is not introduced at the expense of the competitiveness of UK plc as a place to work and to locate a business.

“The system also needs to take account of fairness when some high-street shops will be hit by hikes of over 400% on current rates, while online retailers will see rates cut in many instances. The government should revisit these proposals and carefully consider if the revaluation is the best way to raise revenue from the UK’s thriving small and medium-sized businesses in an era of high uncertainty for the future”.

If you have any questions on how the changes to business rates will affect your business please contact our Tax Team on 01903 234094.

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