Tax & admin · 11 September 2017

One founder a week faces 90-day prison sentence for unpaid business rates

"Row of shops in an inner city area. Many are boarded up and in disrepair. This is Moss Side, Manchester, UK."
Small business owners awaiting a valuation appeal are still liable for legal action from local authorities

UK magistrates are handing sentences to one small company owner every week for unpaid business rates, according to a new Freedom of Information (FOI) request, as local authorities confirm pursuit of the toughest legal penalties possible for non-payment.

The FOI request, brought by leading commercial rents agency CVS and retrieved from the Ministry of Justice, showed that in 2016/17 UK courts handed small business owners in England and Wales 54 sentences for unpaid business rates, and 52 in the previous year.

Founders operating as a limited company have the option of putting their firm into administration if they are unable to repay their debts. But, for self-employed sole traders, local councils are able to apply to magistrates’ courts for a prison sentence of up to three months.

One local authority last month confirmed it was opening legal proceedings against company owners who had failed to meet business rates repayments. Peter Wilkinson, deputy leader for Hambleton District Council, warned local business owners that the council intended to take the toughest action against those with debts.

“We would advise those that are not up to date with their payments to contact the recovery section to arrange payments before they are subject to a court order for committal to prison,” Wilkinson said.

News of a seven-year business rates appeals backlog was recently confirmed by HMRC’s Valuation Office Agency (VOA). A fifth of all appeals made since 2010 remain unresolved, according to VOA figures, leaving 233,550 small business owners awaiting a decision on a potential tax rebate.

However, those with outstanding appeals will still face enforcement through court action until the decision has been made by the VOA.

Commenting on the tough legal consequences of business rates debt, Mark Rigby, chief executive of CVS, said the tax occupied a unique space for company owners, and put founders of the smallest firms at a significant disadvantage.

“It is the only tax not related to the ability to pay, so it places both a disproportionate financial and legal burden on sole traders,” he said in a statement.

Speaking to Business Advice, Rigby said policy makers now had a responsibility to respond to the difficult conditions created by business rates facing the nation’s entrepreneurs.

He said: “The government has committed to reviewing business rates this parliament and this should include the punitive and damaging level of the tax.”

The government’s business rates revaluation in April 2017 saw founders across England and Wales facing a £909.9m per year tax increase, reflecting a five-year rise in property prices.  Several other developments have drawn criticism from the small business community.

The planned “staircase tax” has continued to provoke objection from both MPs and small business owners. The VOA confirmed some 30,000 business owners could receive a backdated increase to bills, as their firm occupies multiple floors that can be accessed by private staircases or walkways.

Meanwhile, the inflation measure used to calculate revaluation, the retail price index (RPI) was labelled as “unfit for purpose” by the Office for National Statistics (ONS).

ONS experts predicted the model, due to be replaced by the consumer price index (CPI) in 2020, will see company owners hit with an additional £781m in bills over the next two years.

Paying over the odds for your premises? Find out everything you need to know about the business rates appeals process

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ABOUT THE EXPERT

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

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