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Business rates and how it affects small business owners


The Budget in March saw several measures taken to reduce the impact of the business rates revaluation for companies who are worst affected, but the system remains fundamentally flawed.

Of the myriad financial pressures on small business, the one that could prove the most crushing for some small firms is the revaluation of business rates, which came into force in April. 

Business rates are calculated on the potential rental value of a company’s premises, multiplied by an annually adjusted figure. Following an overdue revaluation, the first since 2010, some businesses are facing massive increases.

Property-centric sectors such as retail, manufacturing and hospitality will be hardest hit, putting the future of many shops, pubs, restaurants, factories and offices in doubt.

“A tax should be fair, certain, convenient and efficient, but business rates fail on all four counts,” says Matthew Lee, Managing Partner at accountancy firm Bishop Fleming. “They are not based on ability to pay and are instead based on infrequent and arbitrary valuations of property; they discourage investment and innovation; and there is a backlog of more than 300,000 business rate appeals.”

In response to FSB pressure, Chancellor Philip Hammond announced an extra £435million in small business rate relief in his Spring Budget, a short-term measure to ease the burden on those facing rate hikes. This step follows the gains made in 2016 following FSB pressure, including the permanent doubling of the rate relief for eligible properties with rateable values up to £12,000, and doubling of the relief available for rural businesses in England. 

“Clearly the representations made by smaller businesses hit their mark, as a series of reliefs were announced to ease the impact,” says Mike Chapman, Senior Manager, Corporate Tax, at Knill James chartered accountants. “These included capping the scale of increases for any company coming out of small business rate relief, recognising the community role of local pubs by providing a £1,000 discount on business rates for smaller establishments, and providing local authorities with a £300 million fund to deliver discretionary relief.” Firms affected by large rate rises should check local authority websites for details on how to access these reliefs. 

Despite the ‘sticking plaster’ relief fund, FSB National Chairman Mike Cherry is demanding a full review of the current system. “We’re calling for a cross-party Commission to create a simple, fair tax system for a modern economy,” he says.

Under the current model, according to a recent survey of small firms by FSB, 36 per cent expected to see their business rates rise from 1 April, with a fifth of these facing an increase of more than 40 per cent. Of those anticipating a rise in rates, 54 per cent expected profits to fall, and one in five said they might have to consider selling up. 

FSB has also been petitioning devolved governments to review business rates.
Business rates are devolved to the Welsh Government, and FSB Wales has been campaigning for some time to ensure a better deal for small businesses.Thanks to its campaign, 70,000 businesses pay no rates at all, and the rates relief scheme was extended earlier this year to provide an extra £10million which is aimed at businesses on the high street, in addition to £10million in transitional reliefs. FSB has worked closely with local authorities to ensure that this was either applied automatically before bills were sent out or, where this was not possible, that it is communicated transparently to qualifying businesses.

In Scotland, smaller businesses have been better protected, with generous rate relief introduced in 2009. First Minister Nicola Sturgeon announced a review of business rates at the FSB conference in Glasgow last year. And, thanks to an FSB campaign, the small business bonus was extended to 100,000 companies. More than half of members with premises now won’t pay any rates. In the most recent Scottish Budget, a 12.5 per cent cap on rates increases for hospitality businesses was introduced, plus a similar cap for offices in Aberdeen and the north-east of the country. Some Scottish local authorities are also developing their own rate reliefs. 

Business rates in Northern Ireland underwent a revaluation last year.  Following a campaign by FSB Northern Ireland, small business rate relief is to be extended to non-domestic rates bills issued for the coming financial year.

Rates valuations can be contested but the system is hard to navigate, so many small firms use a ratings surveyor. Standards for these vary, and FSB has been working with the Royal Institute of Chartered Surveyors (RICS) to tighten up its code of conduct for ratings surveyors. The new code came into force on 1 April to coincide with the revaluation.

“This is about setting a standard for the industry,” says Martin McTague, FSB Policy Director. “Companies with RICS accreditation have to follow the code of conduct, so we advise members to employ those that are registered with RICS.”