High Streets Initiative · 11 June 2018

House of Fraser denied £3m in tax reductions under business rates system

House of Fraser business rates
House of Fraser is closing 31 of its department stores across Britain

Doomed House of Fraser stores in England were denied almost £1m in business rates relief over the last year, analysis of government data has found.

Over the course of the current business rates regime, over £3m in tax reductions would have been lost, due to limits put onto the government’s transitional relief arrangements.

According to property experts at real estate advisor Altus Group, the government’s transitional relief scheme has made businesses such as House of Fraser – which recently announced the closure of 31 out of its 59 stores – vulnerable.

What are transitional relief arrangements?

Transitional relief arrangements were introduced in England as part of 2017’s business rates revaluation to limit how quickly business rates bills rise and fall after revaluation.

A self-funding scheme worth £3.35bn was designed to support firms hit with high business rates increases. However, strict limits were imposed on tax reductions to help pay for the scheme.

In 2017/18, large shops with rateable values above £100,000 were limited to tax reductions in business rates bills of just 4.1%, before the effects of 2% inflation. In 2018/19, tax reductions were limited to 4.6% before 3% inflation.

Experts claimed House of Fraser’s planned store closures demonstrated how high street stores of all sizes suffer when property values plummet in struggling areas.

Analysis of government data by Altus Group showed that the overall business rates bills for the closing House of Fraser stores in 2018/19 reached £13.68m. Without “capping”, the bill would have been £12.69m –  a shortfall of £988,496 in business rates tax reductions.

Over the duration of the 2017/2021 business rates regime, the total bill for 28 out of the 31 House of Fraser stores in England earmarked for closure would have reached £54.94m. However, without “capping” the bill would have been £51.77, denying the closing branches an overall tax reduction of £3.17m.

While creditors are still reviewing House of Fraser’s company voluntary agreement (CVA), Robert Hayton, head of business rates at Altus Group, said that the government should now rethink transitional relief amid the ongoing high street crisis.

“Transitional relief should apply only to those bills which increase between one revaluation period and the next,” Hayton explained.

“Where local economies are struggling and values fall, ratepayers need to benefit from the full reduction immediately. The cost of upwards transition could be paid for by a small supplement. It would be like an insurance premium against a steep increase in liability.

“Without this immediate reform, places where respite is so badly needed won’t get the fair deal they need to respond to changing markets leaving even more stores vulnerable to closure.”
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Maplin

 

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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