You’ll have seen in the press recently that there’s been a lot of debate as to whether the current way of calculating and levying business rates is fair, and indeed – to use the annoyingly overused phrase that has been John Reid’s (remember him?) legacy to the nation – fit for purpose: for two reasons, this is no great surprise.
Firstly, and understandably, five years of economic hardship – allied to changing times – in the retail industry have led to hard-pressed traders becoming much more questioning of all costs associated with running their businesses: the principal costs – rents, service charges and business rates – have come under scrutiny and been subject to challenge.
Secondly – and more cynically – there’s a General Election looming on the horizon, and all the political parties are keen to woo the “business vote”. So, as I suggested a few issues ago Business Rates will be one of many electoral battlegrounds during the next year or so.
I won’t, by the way, bore you or take up precious space by explaining at length how business rates are currently worked out – but very briefly, they’re based on a percentage (which is set by the government and changes annually by reference to the Retail Price Index) – of the Rateable Value (RV) of each business property, with the RV in turn being “revalued”, customarily every five years, by reference to the rental value of the property in question. Relief is given to, for example, small businesses – see below. Local councils collect business rates on behalf of the government, who then pay a proportion back – the calculation of which would fill a whole article that I’d lose the will to live in writing…..and you’d DEFINITELY lose the will to live in reading……
The first shots in the electoral battle were effectively fired by the government, who not only announced some time ago (to a very mixed response from the business community) that the next “revaluation”, which was due in 2015, has been postponed until 2017 but also that the following changes to business rates which will come into effect from 1 April 2014:
- the annual increase on business rates, normally linked to the Retail Price Index will be capped at 2 per cent
- introduction of a £1,000 business rates discount for shops, food and drink businesses who occupy properties with a rateable value less than £50,000. The discount will apply for 2 years between 2014/15 – 2015/16 and is subject to state aid limits
- allow businesses to pay their business rates over 12 monthly instalments, from April to March
- introduction of a temporary 50 per cent relief on business rates bills for new occupants of retail premises that have been empty for a year or more at the point of occupation. The maximum duration of the relief for the new occupant is 18 months. The relief is available to businesses which move into empty retail properties on or after 1 April 2014 and on or before 31 March 2016
- extend the doubling of small business rate relief for a further 12 months from 1 April 2014 to 31 March 2015.
So that’s where we are today.
Ed Miliband has announced, by the way that Labour’s first act in government, if it wins the 2015 general election, would be to reverse the “planned hike” in small business rates and freeze the levy for the following year.
There have, as I mention above, been calls for an overhaul of the way business rates are calculated with very strong words used by at least one interested party and some radical proposals put forward as alternatives to the present, property-based system.
A report issued on 4th March by the influential Business Select Committee said business rates, which are a tax charged on businesses as a proportion of their rent, are putting off future entrepreneurs from opening businesses.
Adrian Bailey, the chairman of the committee, even went as far as to say: “It’s ironic. Many high streets have been around for 700 years. They survived Hitler’s bombs but the Government’s lack of action is doing more damage than Hitler ever managed.” As I say – strong words!
David Cameron has put his weight (I’m resisting the temptation…..) behind the idea of an overhaul of the systems, to take into account recent innovations like online shopping.
The British Retail Consortium has recently published, in conjunction with the accountancy firm Ernst & Young, a report advocating the following options.
- Replacing the current system with a tax based on other measures, for example, energy usage.
- Discounts to Business Rates bill based on a given value per employee, capped at an overall proportion of the company rates bill
- Discounts to Business Rates bills based on a percentage of Corporation Tax payment, capped at overall proportion of company rates bill
- Modernising the existing system by introducing a simplified, banded revaluation system, with revaluations on a more regular basis
So where do I stand on all this?
There’s no doubt at all that the system does need looking at to reflect if nothing else the ever-changing economic situation and retail landscape.
I have to say that the first three of the above options all have their merits, but I can’t help thinking that the fourth most appeals to me.
An annual revaluation, based on more or less “real time” rental levels (which could go up or down) allied to a system of relief applied to small businesses or new businesses and based on the premises they occupy – far more tangible than sales, numbers of employees, or even energy consumption – seems to me the fairest and easiest way of doing things.
But that’s just my view – what do you, as business people, think???
Email me on [email protected]