Business rates are a tax on business properties, with the tax set by government and collected by local authorities. The issue of rates has been hitting the headlines because the Government is planning on introducing a set of controversial changes to the system on April 1st; critics have alleged that the modifications will significantly harm certain sections of the business community. The 2016 Budget outlined steps to abolish the uniform business rate multiplier, a calculation which is used by the local authority to work out what percentage of the rateable value of a property has to be paid as business rates. Currently, the figure stands at 49.7p for larger businesses and 48.4p for smaller organisations.
Having previously been pegged to the Retail Price Index, from April 2020, the annual uprating of business rates will be subsequently tracked to the less costly Consumer Price Index. Two consultation papers were released in the summer 2016 which unveiled adjustments to the business rates appeal system, with proposals in place to shorten and simplify the appeal procedures coupled with measures to streamline business rate bills and allow businesses to pay their bills online.
In addition it was revealed that from 1st April 2017, permanent changes would be introduced to the Small Business Rate Relief system. Properties with a rateable value of £12,000 or less would attract 100% business rates relief. Properties with a rateable value of £12,000 to £15,000 would attract partial rate relief on a sliding scale and properties with a rateable value between £15,000 and £51,000 would be subject to the small business multiplier. The changes mean in theory 600,000 small firms across England will be exempt from paying business rates while another 250,000 firms will see their rates cut. Furthermore, the cycle of revaluating properties in England will be shortened from five years to three years from April 2020.
However, concerns were raised that the figures have been underestimated as they fail to consider inflation or “appeal adjustments” which the Government adds to its calculations to make sure overall revenues do not drop as a consequence of appeals by businesses against rating decisions. Linked to this, it is claimed that the Valuation Tribunal for England (VTE) would be blocked from making changes to the rating list where the VTE considers a rate assessment to be incorrect; particularly when the incorrect estimation falls within the ambiguous chasm of “the bounds of reasonable professional judgement”.
The GBCC has long campaigned for clarifying and simplifying the administration of business rates and we welcome the increase in business rate relief and the short term positive impact this will have on firms across the region. The move to peg the multiplier to the Consumer Price Index is also supported, as this is more reflective of the health of the UK economy and less dependent on extraneous factors such as house prices and the regional imbalance this brings. Shortening the re-evaluation period of rates is also a positive action, as this will align business rates closer to the current economic landscape.
Despite the steps in the right direction, the Government needs to go much further to provide certainty for businesses and bolster the regional economy. The Chancellor is under pressure to clarify how he intends to help businesses affected by the proposed changes and we are calling on the Chancellor to address these points in the Spring Budget taking place 8th March.
We are calling on the Chancellor to:
-Make clearer the principle of fiscal neutrality – this is essentially a framework which limits the scope to facilitate real change and ensures that any reduction in burden for one firm will be offset by an increased onus on another.
-Remove plant and machinery from the rating systems – as this discourages businesses from investing in premises and takes money away which could be spent on training and recruitment.
-Bring forward the uprating of the multiplier from 2020 to 2017 – because any future sharp increase in inflation (as predicted by the Bank of England) are likely to hit small firms particularly hard.
-Allow the VTE keep its powers – By allowing this body to keep its power to order changes to business rate liabilities where it think it is appropriate, this will save companies that are stuck in a limbo period overpaying on tax. However, this will only work if the Government provide the body with proper funding to make sure it can effectively manage its workload.
For further information, contact Raj Kandola on 0121 607 1814.
DCLG Consultation on the Transitional Arrangements for the 2017 Business Rates Revaluation https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/572823/Transitional_Relief_consultation_response.pdf
HM Treasury Budget 2016 - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf