Next April will see the latest rise in business rates since 2010 and they have been described by some experts, such as John Webber of real estate firm Colliers International, as “the largest changes to business rates … in a generation”.
What does the rise in business rates mean?
Thousands of businesses in England and Wales are set to see big changes to the amount they pay in business rates. At the end of September, the government published the new ‘rateable values’ of their properties before they come into effect on 1st April 2017.
As is to be expected, the biggest rises will be felt in London and the South East due to the soaring prices in property over the last 7-8 years. However, in places where property prices have fallen, they are set to see a drop in the business rates which could help many struggling businesses particularly in the North and Wales.
Business rates are the third biggest outgoings for many small businesses in the UK, behind rent costs and staffing costs. All UK firms pay a tax on the shop, office, warehouse or factory that they use; the rate of which is based on the value of the property, as well as machinery and equipment value and the sector they operate in.
Every five years, the business rates change and the value of the properties are assessed to figure out their new ‘rateable value’. This figure is set to represent the yearly rentable value of the property which is then combined with a ‘multiplier’ (a figure set by the government) to determine a final value.
It is worth noting that the property values used to determine business rates are always from two years previous, so when the rates were last set in 2010 they were based on 2008’s property values. The rates should have changed in 2015 (based on 2013’s property prices) but the government postponed this as they wanted to avoid steep rises and sharp falls to business rate bills at that point.
As a result, these new figures based on 2015’s figures will see a huge rise for many, as property values have skyrocketed in the South and gentrified areas. The changes will be introduced gradually as the government provides transitional arrangements to help companies adapt to the changes in their rates.
This limits the amount that bills will go up each year, providing a cap on the cost of rises and falls to help cushion the transitions. As a result, this can help businesses whose rates have risen to deal with cost easier, but for businesses who will see a fall, they feel that the steady drops in rates will see struggling business continuing to subsidise thriving businesses.
Colliers International have looked at how the new rates will affect UK businesses and they believe that 324 retail centres across Britain will see a decrease in their business rates. They also think that 21 will pay the same amount and 76 are likely to see increases, most of those will be based in London and the South East.
They estimate that Dover Street in central London will see the sharpest rise in bills as this is where many high-end fashion stores are based there. Stores such as Victoria Beckham and Jimmy Choo could see a rise in their rateable value increase by 415%. While Brixton may see a 128% increase and there could be a 102% increase in Westfield.
On the other hand, Newport in South Wales may see a 71% cut and Redcar in Yorkshire could see a 38% cut. These are big changes that affect all these businesses in a big way whether positively or negatively.
Any business that has a property with a rateable value over £12,000 pay business rates but there are systems in place for small businesses. For properties with a rateable value between £12,000 and £15,000, there is tapered relief available. For businesses in the countryside with a local population below 3000 residents, you can get between 50-100% off the rates.
Charities and sports clubs also get up to 80% relief and agricultural land or religious buildings are exempt. Empty, newly occupied properties and businesses in enterprise zones can also apply for relief.
These new rates will see big changes to the overheads that many businesses are paying on a monthly basis. However, some commentators feel that more needs to be done to overhaul the business rates system, in order to help local authorities and struggling businesses across the country.