Tax & admin · 23 March 2017

Here’s how company owners would change small business rates given half a chance

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Business rates have been deemed “unfair” on small firms in the South of England

Next month, Britain’s business owners will once again receive a rateable value for their property, for which it is likely they’ll be required to pay new levels of small business rates.

The long-awaited business rates revaluation, beginning on 1 April, will be the first in the UK since 2010.

During the revaluation, the market rental value of all business premises is worked out, then, after government multipliers are factored in, owners across the country will receive updated annual small business rates they’ll be required to pay on their premises.

From April 2017, UK businesses with a rateable property value of £15,000 or less will receive full small business rates relief, yet it is likely the tax will hit ventures hardest in those areas where property is valued highly – namely throughout London and the South East of England.

There is little doubt of the impact the revaluation will have on small business rates in these highly-priced areas. A recent Federation of Small Business (FSB) study found that the average micro business in London, based on a rateable property value of around £35,000, will be paying £17,000 come April.

At the same time, owners of similarly-sized companies in many other towns and cities across the UK will be exempt from paying such high business rates due to the relatively lower value of their premises, while rural rate relief will also see some firms in the more remote parts of country receive an exemption.

In his recent Spring Budget speech, the chancellor made attempts to address some small business rates concerns and ease some of the effects of the disparate system.

Philip Hammond’s £435m relief package included an extra boost for all UK business owners just emerging from rate relief, a fund empowering local UK authorities to make some of their own small business rates decisions, and a revaluation discount for the majority of Britain’s pub owners.

Despite these concessions, there will most certainly be clear winners and losers among small UK business owners when it comes to this year’s revaluation, and a nationwide consensus has grown that the rates system as it stands unfairly impacts small UK firms in general, and those in certain areas specifically.

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A retailer opening up in Hackney, London, where business rates are expected to sky-rocket

So, what could an alternative system look like? Lisa Ford, owner at The Card Gallery – a bespoke celebrations card company based in Bridgnorth, near Birmingham – told Business Advice that a means-tested small business rates system, possibly based on a firm’s annual turnover, might be a fairer option.

Like many local firms in her area, Ford’s business is small enough to receive full rates exemption, yet the entrepreneur said she wouldn’t mind contributing to a system that was guaranteed to benefit all smaller companies.

Ford added: “If businesses felt they were getting something for their money, perhaps they wouldn’t mind the increased rates. With business rates, you don’t see anything for what you pay.

“At least when you pay council tax, the local authorities come and take away your rubbish,” she went on to say. “With this, there’s no support or advice that comes with it, it’s just another cost for small business owners whose margins are already slim.”

For London-based startup founder Scott Phillips, the best way to ensure small business rates continue to work for startup retailers is to introduce a “holiday scheme”, whereby rates are slashed for companies in the first few years of growth, eventually reaching the 100 per cent rate applicable to the local area, as the business matures.

“This would enable firms to re-invest the savings, lower the administrative costs of doing business and encourage new entrants onto the high street,” he explained.

Phillips understood that for new businesses, finding retail space in London which would benefit from business rate relief under the current system is nigh on impossible. He built his online art marketplace business, Rise Art, precisely because upcoming artists and designers couldn’t find affordable premises to showcase their work in the capital.

He made the point that some specialist premises, such as churches, already benefit from a hybrid form of temporary business rate relief, and that the government should extend the idea to include some startups.

“The market is designed to favour existing brands which provide new developers with anchor tenants and assured revenues,” added Phillips. “The risk with business rates is that it becomes an administrative hurdle, and a barrier to innovation and investment. The UK wants to promote a more attractive high street and retail environment.”

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Owners have called for a more attractive environment for small high street retailers

Whether small business rates loopholes are introduced for London and the South East of England in future remains to be seen, but similar ideas have been tabled by small business owners and policy makers alike.

In a recent speech, London mayor Sadiq Khan called for “full devolution of business rates to London with genuine protections in place [to] safeguard businesses [that] are part of the fabric of what makes London a successful city.”

Following comprehensive research, the FSB also concluded that the best way to protect owners from small business rates in London and the South East of England was to bring in a series of new rateable value thresholds for 100 per cent rate relief, which taper off according to the age and location of given small businesses.

Paul Kelly, founder at online business hub Your Business Community and former FSB chairman in London, told Business Advice that rather than using property value, a new simple UK-wide common measure was needed to make business rates work better.

He suggested that the size of business premises would be a fairer measure to determine how much in business rates owners should pay. “It would simplify the system, and make the tax as ‘even’ as possible,” he said.

“Currently, all it takes is for a local housing development to start for property prices in the area to go up, leaving local business owners with much higher rates overnight.

“Measuring square footage is simple, and business owners will understand the sums even if they don’t accept the rates they’re required to pay. Government can then include multipliers based on sector, or the type of business local owners are running.”

In whichever ways that small UK business owners would like to change the business rates system, it’s clear a united front is needed to do so. Associations and business bodies will continue to play a vital role in ensuring the views of small business owners about business rates from up and down Britain continue to be heard in Westminster.

Catch up and read more of our stories on the business rates changes set to impact UK company owners this year: 

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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