Impending rises to business rates are expected to have serious consequences for many firms in London and the south-east, following the first revaluation of business premises in seven years.
Those in areas where the property market is less buoyant will not be so badly affected, with some seeing a reduction in their business rate liability, and others becoming ineligible to pay business rates at all.
Unusually steep increases in business rate bills are likely to halt the growth and development plans for many businesses, however, potentially causing entire supply chains to break down.
Areas of London that were once ‘up-and-coming’ and attractive to small businesses, are now associated with some of the steepest rises in business rates.
So what exactly is the ‘ripple effect?’
Business location is clearly a key factor in determining whether this revaluation is good or bad news, but it is not only individual companies that suffer financial distress as a result of high business rates.
The danger of a ‘ripple effect’ is particularly prominent in areas where property prices have soared over recent years. Commercial landlords would be forced to step in to meet the liability for business rates, should their tenant go out of business.
Add to this the repercussions for other suppliers unable to recoup monies owed to them, and for customers with unfulfilled orders or lost deposits, and the aftermath of this increase could extend far wider to affect a number of other businesses and communities.
- Lowered investment in areas where property values are high
- Businesses entering insolvency with the resultant loss of jobs, and adverse effect on local economies
- Stalling of growth and development plans, including recruitment and expansion
- Lowered appeal of London as a centre for foreign investment post-Brexit
How are business rates set?
Each non-domestic or commercial property is assessed for business rates, and assigned a rateable value by the Valuation Office Agency (VOA). Annual rates are then calculated using the Uniform Business Rate (UBR), a common business rates multiplier.
This multiplier is set by the government each year, and represents a percentage of a property’s rateable value. The small business rate relief scheme enables qualifying businesses to use a small business rates multiplier, with other reliefs also being available.
These include a reduction for empty or partly occupied properties, and for those with premises in rural areas. Transitional reliefs also help to cushion large increases to some extent, allowing businesses to pay the extra amounts incrementally over a five-year period.
So what changes are in store for 2017?
- The Chancellor is allowing local government to retain all business tax revenue – previously they were allocated 50%, with the other half being redistributed to local authorities around the country from a central government ‘pool.’
- The threshold for Small Business Rate Relief (SBRR) is rising from £6,000 to £15,000 maximum. Owners of non-domestic premises with a rateable value of less than £12,000 will be totally excluded from paying business rates, with tapered relief being available for those with properties valued at up to £15,000.
- The higher rate threshold will increase from £18,000 to £51,000.
- The appeals process is changing
Business rates appeals procedure – ‘Check, Challenge, Appeal’
A high number of speculative appeals made by businesses in the hope that they might qualify for a reduction, has resulted in an overburdened appeals system.
The government hopes to prevent these types of tentative appeal that lack true substance, and enable businesses to navigate the system more efficiently using the ‘check, challenge, appeal’ process.
- Check: The rateable value is checked on the Valuation Office Agency website – any errors that can be agreed are amended, otherwise they can be challenged.
- Challenge: Within four months of the ‘check’ stage, a challenge must be presented with clear grounds, supported by documentary evidence, and offer a revised property valuation.
- Appeal: The Valuation Tribunal checks the evidence that was presented to the VOA, and delivers their verdict.
When companies cannot afford their business rates
The fact that business rate liability is not related to a company’s turnover or profit makes it a huge financial burden for many businesses, particularly if they are caught in a location trap.
Existing small businesses in high value properties throughout the UK may not survive the additional financial demands presented by these increases, leading to more insolvencies, unstable local economies, and an uncertain future for profitable companies that were previously thriving.
About the author
Keith Tully is partner at Real Business Rescue; part of the Begbies Traynor Group. Keith has over 25 years’ experience advising company directors on issues such as insolvency, finance, and personal liabilities.