Business Rates

Business Rates

Local government is financed by a combination of centrally-administered funding and locally-administered charges and taxes.

Business rates are paid by occupiers and owners of commercial and industrial property to the local authority, but at a rate set by central Government. The Government sets the rate in order to prevent wide disparities in charges stemming from widely differing rate bases between local authorities.

Local authorities collect the Business Rates for their area and hand the money to central Government; it is then redistributed to councils in line with a population-based formula.

Background

Business rates were introduced in 1990, along with the community charge or 'poll tax' (now Council Tax) as a replacement for the old system of domestic and non-domestic rates.

The Valuation Office Agency, an executive agency of HM Revenue & Customs, has a statutory duty to prepare local rating lists containing rateable values for all non domestic properties in England and Wales every five years.

The multiplier – also known as the Uniform Business Rate (UBR) – is then used by the local authority to calculate what percentage of the rateable value of a property has to be paid as business rates.

The multiplier is set annually by the Government.

For 2012/13 the multiplier for England is 45.8p and for the City of London 46.2p . For all businesses in Wales the multiplier is 45.2p. Therefore, as an example, if the rateable value of a property in England was £26,000, this would be £26,000 x 0.458 = £11,908 less any reliefs that are applicable. In Wales this would be £26,000 x 0.452 = £11,752 less any reliefs that are applicable.

A small business rate relief scheme has been in operation in England since April 2005. The small business multiplier for 2012/13 for England is 45.0p and for the City of London

There are other reductions available, for example if the premises are empty.

Controversies

The shift to the Uniform Business Rate in 1990 was deeply unpopular with businesses, as rental values had increased dramatically since the last full-scale non-domestic valuation in 1973.

Local authorities have also been keen to see control over Business Rates returned to them. Councils often accuse the Government of underfunding them through central grants that impose additional duties that they must fulfil.

However, Sir Michael Lyons, in his 2007 inquiry into the role, function and funding of local government, advised against returning the Business Rate to the control of local authorities. But he did recommend that empty property relief be reformed and the Chancellor announced that legislation would be taken forward to reform relief from April 2008.

The Federation of Small Businesses expressed concern that small firms with empty properties could have to pay "thousands extra" in business rates because of changes to exemption rates which came into force from 1 April 2011. The FSB was concerned that government plans to cut the empty property rate relief threshold from £18,000, to just £2,600 would "place a very significant burden on many small firms that are struggling in the current economic climate."

In October 2012, the Government's announcement that it intended to postpone a revaluation of business rates until 2017 attracted some controversy. The most recent valuation lists were prepared by the Valuation Office Agency in 2010, with the next revaluation scheduled for 2015.

Local Government minister Brandon Lewis rejected suggestions that the change was being brought in to assist southern parts of England at the expense of other parts of the country, claiming that "offices in central London would have seen by far the greatest reductions in tax paid if the 2015 revaluation had gone ahead."

Mr Lewis insisted that postponing the 2015 revaluation would "provide business with a stable economic environment in which to invest and support jobs for the next 5 years."

Perhaps less controversial is the introduction of the 'business rates retention scheme' which will allow local authorities to retain a large proportion of locally collected business rates to help fund services they provide.

The aim of the scheme is to create a direct link between business rates collected and local authority income, and reduce local authorities' dependency on central government grants.

According to the Government, businesses will see no change in the way their business rate bills are calculated, but they will have a much greater incentive to work with local councils in making the right business decisions for their area.

The Local Government Finance Act, passed in November 2012, gives effect to the reforms which are expected to be implemented from April 2013. The Government suggests the scheme will give all councils "a strong incentive to go for growth" and that it could add approximately £10 billion to the wider economy by 2020.

Statistics

Small Business Rate Relief.

You can get small business rate relief if:

You only use one property
Its rateable value is less than £12,000

Until 31 March 2014 you’ll get 100% relief (doubled from the usual rate of 50%) for properties with a rateable value of £6,000 or less. This means you won’t pay business rates on properties with a rateable value of £6,000 or less.

The rate of relief will gradually decrease from 100% to 0% for properties with a rateable value between £6,001 and £12,000.

You have more than one property:

You could get small business rate relief if the rateable value of each of your other properties is less than £2,600.

The rateable values of the properties are added together and the relief applied to the main property.

You’re a small business but don’t qualify for relief:

If your property has a rateable value below £18,000 (£25,500 in Greater London) you’re considered a small business.

Even if you don’t qualify for small business rate relief, your business rates will be calculated using the small business multiplier instead of the standard one. This is the case even if you have multiple properties.

The multiplier shows the percentage (pence in the pound) of the rateable value that you pay in business rates.

Source: Gov.UK – 2013

Quotes

"I appreciate that as a very direct form of taxation, business rates are not popular. Local government finance is too often opaque and confusing. However, we are acting in an open and transparent manner."

Local Government minister Brandon Lewis, defending the business rates revaluation postponement – November 2012.

"Business rates are the third biggest expense for many small businesses after rents and wages. It is the only tax not related to the ability to pay, so it places a disproportionate burden on small businesses. "

Federation of Small Businesses – 2013

"Against this relentlessly tough economic backdrop, it matters more than ever that the BRC campaigns successfully to control government-imposed costs and regulation so that members' businesses can succeed and make their full contribution to investment, jobs and growth. As a top priority we'll be keeping up the pressure for a business rates freeze in April."


British Retail Consortium director general Helen Dickinson, writing for the Grocer –  January 2013