Business rates could be the difference between your small firm remaining operational in the years ahead, so we’ve asked some experts and company owners whether there are any business rates loopholes worth knowing about.
As of 1 April this year, the government has revalued every commercial premises in the UK, and every business owner should be able to work out a new rateable value based on their premises’ rental value from April 2015.
The revaluation was delayed by two years, meaning that this year’s incoming business rates will reflect seven years of property price hikes in Britain – a fact that will increase fixed costs and put the future of thousands of small UK businesses at risk.
Certain owners will avoid the worst of any damage caused by the revaluation because of the type of small company they operate.
So-called “rural” businesses – those in an area with a local population of less than 3,000 – will benefit from full rate exemption, while most UK pub owners will receive a £1,000 revaluation discount.
The smallest, most vulnerable firms will also receive a certain amount of government protection. Commercial properties with a rateable value of under £12,000 are exempt from paying business rates altogether, for example.
Meanwhile, the small business “multiplier” threshold – the amount owners must multiply their property’s rateable value by to work out their business rate liability – has been extended to any venture with premises valued at £51,000 or less.
In his 2017 Spring Budget announcement, the chancellor Philip Hammond set aside a £110m fund to help the many small business owners which are due to emerge from business rate relief for the first time this year, and a £300m fund has been earmarked for local UK authorities – devolving power to set business rate relief away from Whitehall.
But, if your firm isn’t set to benefit from government-backed business rates loopholes, what can owners do to circumvent the business rates rise in ways that are lawful and cost-effective?
One answer could be to move your venture into a co-working space, where the costs involved with renting premises are divided up between tenant businesses, and the property itself is managed by a third party.
This was the case for Lucy Hutchings Hunt, founder and managing director at York-based web design agency Systemized. She chose to grow her startup by renting desks in a co-working space near the city’s center, thereby sharing the burden of costs associated with running an office.
She told Business Advice: “As part of a collective we can all work in a really cool space in the centre of town and be part of a larger commercial environment, without having to shoulder the costs usually associated with doing so.
“Business rates are a real prohibitor for smaller companies which want to expand the workforce and add more desk space, because they are such a commitment.”
It’s often in the interests of co-working space operators not to inflate the cost of their memberships, or charge extortionate prices for desk space, even when faced with potentially huge overhead cost increases.
Co-working spaces may therefore offer the best option for small business owners looking to circumvent the business rates rise. Founder and director at London-based co-working space managing agency The Brew, Andrew Clough, told Business Advice that remaining the most cost-effective option for startups was his primary objective.
He said: “We can either increase our membership prices, increase the density of our members in the space, or look to create supplementary income on top of what we offer.
“We’re determined to avoid the first two options for as long as possible, as our objective is to provide spaces where startups can thrive. That means developing add-ons and supplementary services, to make more profit from the space we already have.”
Business rates loopholes could be forthcoming If you’re the owner of industrial premises – one of three types of commercial property which also includes retail and office premises – then you may be entitled to a six-month business rates exemption if your premises remain empty.
This six-month period can restart every time the industrial premises become vacant again. So, if landlords of empty industrial premises can find occupants for a short-term period of just a few weeks or months, they may be able to claim business rates exemption each time the premises next become empty – one of the more useful business rates loopholes.
In this instance, it’s vital landlords can prove the short-term “occupation” of tenants, and the rulings of different local UK authorities may vary on the issue, according to a recent report from the Institute of Chartered Accountants in England and Wales (ICAEW).
With shop owners in London typically facing more than ten per cent business rates rises this year, it’s the online retailers, operating from industrial premises located out-of-town, which stand to lose the least from the revaluation.
Out-of-town industrial premises will face business rates increases of just two per cent on average, according to analysis from CVS, indicating that to make use of business rates loopholes, small retail business owners should consider moving away from a reliance on in-store trade and invest more in their ecommerce offering, to encourage customers to buy online.
Alan Hawkins, a spokesperson for the Independent Retailers Association, recently said in a statement: “If you’re sending your product straight to the consumer, and your business rates are based on industrial warehouse rates, you’ve a massive competitive advantage.”
While it may not be possible for owners to take advantage of business rates loopholes, the examples given here prove that for many small UK company owners, taking time to fully research their options, or investing in professional tax advice, could result in significant savings, softening the business rates blow.
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