Business rates represent a significant amount of income for England, but do they need reform to reflect current economics? Elizabeth Ruff has the details.
They say that there are only two certainties in life – and liability for business rates is chief among one of the most frustrating subjects that businesses have to contend with. Having been on the scene since 1990, business rates are paid by occupiers of non-domestic properties (such as shops, offices, warehouses, factories, guest houses) and in 2013-14 more than £20.5bn was brought in by business rates in England.
In April 2013, the government introduced the business rates retention scheme to allow local governments to keep 50 percent of all business rates receipts and therefore 50 percent of any growth.
The big review
With such a wide hold on the economy, the then Chief Secretary to the Treasury Danny Alexander announced in March the most wide-ranging review of national business rates in a generation, with the aim of modernising the system for payment of this tax across England. The intention was to examine the current structure, the current use of properties by businesses and a review of other countries’ systems so as to ensure that any recommended changes reflect the radical progress in the worlds of commerce and industry.
The announcement also saw a new discussion paper published by the Government outlining a series of questions to be considered during the course of the review, which included:
• What evidence and data can be provided to inform the government’s assessment of the trends in use and occupation of non-domestic property?
• Is there evidence to suggest that changing patterns in property usage are affecting some sectors more than others?
• What evidence is there in favour of the Government considering a move away from a property-based business tax towards alternative tax bases – what are the potential drawbacks of such a move?
• How can the Government use business rates to improve the incentive for local authorities to drive local growth?
• Should business rates be reformed to make them more reflective of wider economic conditions and if so, how?
• What is the impact of the business rates system on the competitiveness of UK businesses? And are there any particular impacts on SMEs?
Benefit and pitfalls
This review and consultation followed the original commitment in December 2014 to conduct a review and to implement a £1bn package to reduce business rates in 2015/16, with the ambition of supporting smaller businesses and to ensuring the future of the high street.
Whether or not what will be delivered will be anywhere near sufficient enough to make a difference is debatable, but from April 1, the Government implemented an increase in the relief for all occupied retail properties valued at £50,000 or below, to £1500 from £1000 until March 31 2016.
Figures suggest that this will provide support for 575,000 businesses and take away liability altogether for 385,000 small business, it will cap the rise in the business rates multiplier at two percent which will benefit all businesses, and extend transitional rate relief to support 16,000 small business facing significant bill increases due to the ending of transitional rate relief.
It is interesting to note that the Government does not consider that the provision of financial services nor the services provided by letting agents, medical service providers or professional services to be retail and therefore premises occupied by these service providers are ineligible for the reliefs.
The Government plans to reimburse those local authorities using their discretionary relief powers, although the local authorities may choose not to grant relief if they do not consider it appropriate.
The poignant questions and possible outcomes mean that once the initial consultation phase has concluded and responses have been collated, it should provide interesting reading for all.
The consultation into business rates is still ongoing with the Government keen to hear from business owners with a view on the topic, whatever the size of their firm. Comments can be sent to the Treasury (just go on the gov.uk website and search for ‘business rate review’) with the deadline for contributions to the initial stage of the consultation being June 12, 2015, with the findings set to be reported by Budget 2016.
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