Demand for fair business rates

By Ellie Bothwell

- Last updated on GMT

business rates
business rates

Related tags Small businesses Business rates Rateable values Taxation in the united kingdom Business Business rates in england and wales Government

Last week, more than 100 companies, including leading firms in the pub trade, signed an open letter calling for an overhaul of the business rates system. They labelled the tax as a “critical problem” that is “no longer fit for the 21st century”. Ahead of the Government’s review of business rates by 2017, pub industry signatories share their ideas on how the system could change.

Yearly revaluations

Jerry Schurder, head of rating at Gerald Eve, has suggested introducing annual revaluations.

Currently they are usually every five years, but the next one has been postponed by two years to 2017. Schurder said: “It would allow the tax to fluctuate in line with prevailing economic conditions and ensure the load is spread as fairly as possible.

It would also lead to a reduction in the number of appeals because there would be less financial incentive.” Ion Fletcher, director of policy (finance) at British Property Federation, also said annual revaluations would ensure ratepayers’ economic conditions.

Alex Jackman, head of policy at Forum of Private Business, called for any yearly increases in business rates to be capped over the course of the next Parliament.

“[The Government should] carry out an immediate rating assessment with a promise not to increase rates for any business as a consequence,” he added.

Association of Licensed liabilities reflect actual rental values. Brigid Simmonds, chief executive at the British Beer & Pub Association, said revaluations should “keep up-to-date with trends in the market” and it should be easier for pubs to be revalued if their economic circumstances alter.

Fixed tax rate

Schurder said: “The approach I would adopt is a uniform business rate (UBR) at a fixed percentage, meaning the amount the Government receives would vary in line with property values. In that scenario, you wouldn’t need any form of inflation index or cap on the UBR increase.

“Firms would be sure what they were paying was a sustainable level of tax and not one that regularly came out of kilter with property values.”

Fletcher said the Retail Price Index (RPI) escalator system should be abolished because it means current rates do not reflect the Multiple Retailers chief executive Kate Nicholls has called for a “root and branch” reform of the basis on which rates are calculated and set.

She said: “Annual increases [should] be based on annualised CPI (consumer price index) not a snapshot of September’s RPI with a cap, ie, a collar and cuff approach to ensure operators can budget effectively.”

Greater transparency

Jeremy Beadles, corporate relations director at Heineken has called for “simple, straightforward and transparent billing, which is consistent across the UK”.

He says this is in line with the British Retail Consortium’s manifesto for change.

Schurder said: “Greater transparency over rating valuations and the calculations of liability would make the whole system more understandable and administratively easier to deliver.”

Nicholls said rateable values must be more accurate and transparent.

“It is not clear at the moment what is taken into account,” she said.

“The guidance was drafted last in 2005 so it needs modernising to reflect what a typical modern pub is.”

She also said there should be a shorter period of time between rateable values being assessed and rates bills being issued to ensure the information on which bills are based is up to date and accurate. Simmonds added that local authorities should list the reliefs that are available to businesses on their bills.

Exempt small firms

Schurder said: “Out of the 1.75m assessed properties in England, 1.135m have a rateable value below £12,000. That’s 65% of all rated properties and yet they only pay just over 6% of the total rates bill across the country.

“These small businesses could either be exempt or pay a flat charge, so the Valuation Office can concentrate on the higher value properties that contribute the most. If there are fewer properties being valued, they can also be revalued more frequently.”

Jackman agreed the Government should consider removing small businesses from the rates system or otherwise make Small Business Rate Relief (SBBR) permanent. Simmonds has called for an extension of SBRR and the threshold at which small businesses are defined to be raised.

“In the 2013 Autumn Statement, Retail Relief was introduced for properties with rateable values of £50,000 and below. This threshold could be used for the UBR split, between large and small businesses,” she said.

Online paying system Jackman said: “An online system for rate paying should be introduced, ensuring deductions are automatically made when paying and facilitating easier challenges to the Valuation Office Agency.”

Empty property relief

Currently businesses have to pay rates on empty properties after three months. Fletcher said the Government should reinstate a six-month empty property rate relief. “Taxing those who own empty units is effectively a ‘tax on failure’, and acts as a deterrent for further redevelopment and refurbishment,” he said.

Save over-performers Nicholls said: “Because rates in the [pub] sector are based on FMT [fair maintainable trade] and hypothetical rents, there is a need for measures to protect overperforming operators to prevent business rates being used to penalise success.”

However, Schurder said there is “a lot of misunderstanding” around how pubs are valued. He said while in the “arithmetic sense” rates are based on turnover, it is not turnover that is directly taxed. He said turnover is used as a means of estimating a pub’s market rental value, instead of valuing each one individually, and the rental value is then taxed like all other properties.

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