Tax & admin · 18 October 2017

Inflation could see business rates rise by £1.15bn without government action

small UK shops 2015
Britain’s business rates are some of the highest in Europe

Small companies are concerned that without government intervention, business rates bills could rise by as much as £1.15bn next year in light of newly-released inflation statistics.

From 1 April 2018, rates specialists CVS have waned that business rates liabilities could rise to £1,148m in England and Wales, after the UK’s Retail Price Index (RPI) was uprated to 3.9 per cent by the Office of National Statistics (ONS) on 17 October.

RPI affects UK business rates bills because the Uniform Business Rates (UBR) multiplier increases annually in line with the Bank of England’s RPI figure, in September each year.

Britain’s RPI has increased rapidly over the last 12 months, jumping two per cent since September 2016 and three per cent since February this year. RPI increased from 3.6 per cent in July to 3.9 per cent in August – it’s highest level since January 2012.

Small business organisations have demanded strong action from the government to shield owners from any damaging effects caused by rapidly increasing inflation.

In its 2016 Budget announcement, the government pledged that uprating for inflationary rises in business rates would be switched from the higher RPI calculation to the lower Consumer Price Index (CPI) measure, but the switch has not yet occurred.

Commenting on the feared business rates rise, chief Executive of CVS, Mark Rigby, urged the chancellor to make good on the pledge and freeze inflationary increase to rates in this year’s Budget announcement.

“To plough ahead with such rate rises would be foolhardy, and the chancellor must be bold in his vision with a freeze.,” said Rigby. “Property taxes in Britain are already the highest of any European nation both as a percentage of GDP and overall taxation.

“Brexit is driving inflation and businesses are holding off from investing because of the current economic climate of uncertainty. Insolvencies are expected to rise over the next two years.”

In a statement, national chairman for the Federation of Small Businesses (FSB), Mike Cherry, said: “A near four per cent [business rates] bill increase next April, on top of losing year one transitional caps, will be the last straw for many.

“[This] RPI figure follows six months of business rates misery for our small business community. Since April’s bruising revaluation we’ve had the staircase tax, introduction of an unworkable appeals platform and chronic delays to the chancellor’s £435m relief package.

“With the Brexit clock ticking, other nations are trying to tempt our entrepreneurs to their shores. The Budget is the chancellor’s opportunity to position the UK as the best place in the world to do business.

“Bringing forward CPI-indexation for rates bills from 2020 to 2018 would be a good place to start. Our business rates are already the highest in Europe.

“Small firms have waited too long for a business rates lifeline. Only last week we were told that under half of English councils have started allocating their share of the £300m hardship fund launched in March. While local authorities have been hoarding this much-needed support, entrepreneurs have desperately been trying to make ends meet.

“Small businesses are really starting to feel the inflationary squeeze. Rising prices mean less customer spending power [as] one in three small firms sees consumer demand as a barrier to growth. Seven in ten report a rise in operating costs, which ultimately have to be passed on in the form of reduced wages or further price increases.

“The chancellor should give careful consideration to his inaugural Autumn Budget. The last thing our businesses need is new tax increases or loss of entrepreneurial reliefs.”

One in eight UK firms summoned to court for business rates non-payment last year

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Fred Heritage was previously 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.

Tax & admin