Business rates - what you need to know about the changes

Fleur Lewis, partner at Bishop Fleming accountants Fleur Lewis, partner at Bishop Fleming accountants

Business rates are based on a property’s potential rental value, taking into account rents paid by surrounding businesses. This is then multiplied by the property’s size and by an annually adjusted multiplier, writes Fleur Lewis, partner at Bishop Fleming accountants.

Business rates are set to change from April 1 2017, in some cases dramatically, due to a long-overdue revaluation of properties. The retail sector in particular will be significantly affected, possibly resulting in a number of shops either closing or moving online. 

Coupled with this revaluation is a doubling of the small business rate relief (SBRR) threshold to £12,000, resulting in businesses operating in properties with rateable values below this figure paying no business rates. Tapered relief is available where a property’s rateable value is up to £15,000. Where, however, a retailer has more than one shop, the rateable values of all shops operated have to be added together, potentially pushing a retailer over this threshold and losing relief. 

Whilst many businesses will be operating from premises that have rateable values above the threshold, and will therefore face the full consequences of any change in value, small firms and start-ups could benefit and may even have the opportunity to give themselves more space to grow. 

Adam Smith said in the Wealth of Nations that taxes should be equitable, certain, convenient and efficient. Business rates fail on all four counts. They are not based on an ability to pay, are instead based on infrequent and arbitrary valuations of property, they discourage investment, productivity and innovation, and there is currently a backlog of over 300,000 business rate appeals. 

Some businesses face historic rate rises in April due to a rise in property values in some areas, which could lead to more appeals. Landlords may be able to help by, for example, offering to reduce rents for a limited period or even offer rent-free holidays to avoid properties falling empty. 

The proposed devolution of rates by 2020 to local authorities so that they retain 100% of what they collect could lead to more complications, with some regions benefiting more than others. Though perhaps now is the time for the government to consider reforming business rates into a form of corporation tax to make it more equitable.

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