Working spaces

The business rates loopholes your small company should know

Business Advice | 4 September 2020 | 4 years ago

Co-workers working in co-working space
Co-working spaces may offer startups important business rates advantages
Business rates could be the difference between your small firm remaining operational in the years ahead, so we asked some experts and company owners whether there are any business rates loopholes worth knowing about.

As of 1 April 2017, 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 the 2017 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 due to emerge from business rate relief for the first time, and a 300m fund was earmarked for local UK authorities devolving power to set business rate relief away from Whitehall.

But, if your firm wasn’t able to benefit from government-backed business rates loopholes, what could 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 centre, 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.

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

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.

were 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.

Rural industrial warehouses
Out-of-town industrial premises will see lower business rates increases
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 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 e-commerce 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.

This article was originally published on 9 May 2017.

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