Answering the big business rates question

Chris Grose at Hartnell Taylor Cook argues that, rather than implementing isolated changes to property tax, the UK government would be better off reforming it fully

 

The Chancellor’s second Autumn Budget, set for 26 November, is fast approaching, and many would say not fast enough. For businesses beleaguered by business rates, there really is no time like the present for the government to take the leap, enact reforms and make a case for real change.

 

With economic conditions still uncertain, for businesses already struggling to stay afloat, the last thing needed is another potential increase in tax payments next financial year. Despite next April’s revaluation, business rates yields will be rising in line with inflation and therein lies the ‘double hit’ fear: a prediction that total rate payments will skyrocket by roughly £2.5 billion, which presents yet another blow to businesses who have long felt that high streets have transformed into frontlines.

 

What’s the fix, then? Instead of this double blow, there needs to be dual reform. There also needs to be no delay in clarifying for businesses exactly what they can expect, when, and why.

 

 

Too little too late?

This year’s Autumn Budget comes in later than usual, right at the end of November, and it’s hard not to note the irony here. The 2021 revaluation was cancelled on the very principle that the government wanted to give businesses more certainty on where they stood. Yet, here we are a few years later, with businesses still unable to determine their rate liability in April until almost December. Until businesses can cast their eyes on the draft 2026 Rating List, there are no real preparations they can make to get their payments in order.

 

Certainty is the backbone of stable, productive business. The UK cannot be a realm where confusion reigns and gaps in action are filled with speculation, which often stifles effective redress and progress. Consider the recent proposals for replacing stamp duty on domestic property and reforming council tax, which were introduced without any explanation of their necessity. The news stirred rumours and flared anxieties among those with commercial properties, naturally inspiring some pretty negative reactions from the property industry. These reactions may put the government off carrying out the full-scale property tax revaluation that is sorely needed.

 

 

Total reform, total resolution

Sweeping reform is desperately needed to balance equations and bring businesses into some long-sought-after relief. There is no denying that property tax is an efficient source of revenue for a government looking to extract itself from a deep funding hole. However, more has to be done, and being crystal clear is a priority.

 

The government could deploy two fixes in tandem: reducing the rate in the pound; and conducting a council tax revaluation. Businesses are currently in the dark as to what their rateable value will be, essentially paralysed until they get further word. By reducing the rate in the pound, some certainty will be granted to businesses, who will at least be made aware when agreeing rent exactly what the impact on their rates will be.  For revaluing council tax, this can be supported by moving tax receipts from higher-value property areas.

 

 

Surviving the storm

Nobody wants widespread billing issues, and nobody wants to be shouldering a bigger burden than they need to. With this in mind, there are two critical, shadowy policy points for businesses to be aware of and navigate.

 

Firstly, there are the lower multipliers afforded by the Non-Domestic Rating (Multipliers and Private Schools) Bill, which only apply to properties with a rateable value of less than £500,000. Whilst some businesses will come in underneath this cap, others will far exceed this and will by no means be sufficiently funded to cover even higher multipliers than they have seen before.

 

Secondly, there are rateable values. Rateable values are meant to represent the open market rental value at the relevant valuation date. This is currently 1 April 2021, but from 1 April 2026 it will change to 1 April 2024. From then, there will be a revaluation every 3 years, so the one after will be in 2029 with a valuation date of April 2027.  With rental agreements set to be followed by changes in rateable values in the years ahead, all businesses should ensure their rental agreements are as low as possible from the outset to avoid a cost surge down the line. It is crucial to remember that higher rent will be reflected in higher rates come the next revaluation.

 

 

Creating a functioning system

All changes so far introduced or proposed by the government have merely been acts of appeasement rather than components for building a better, sustainable future for businesses. Costs of running a business need to be reduced, and a uniform business rate that’s been hiked from 34.8p in 1990 to up to 55.5p today is far from an indicator of health or recovery.

 

To keep businesses alive, the actual economic circumstances of the commercial properties that house them must be accounted for and accurately reflected by the total value of the Rating List. If the rate in the pound were then also to remain fixed, businesses would be afforded what now seems like the pleasure, rather than the basic ability, to estimate their ongoing liability and budget ahead effectively.

 

For once, the devil is in the lack of detail, so we wait somewhat impatiently for the moment when more information is granted us and more systemic changes are made.

 

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Chris Grose is Rating Director at Hartnell Taylor Cook

 

Main image courtesy of iStockPhoto.com and PeopleImages