By Adam Bernstein
It’s not hard to find arguments for the need to reform business rates, a tax which to most businesses is life threatening. In May 2011, the St Albans and Harpenden Review reported that Springfield Pharmacy was to close because of the high level (and rate of increase) of business rates. The owner, Mr Brahmbhatt, operated three other stores and noted how rates rose from £19,000 a year to £24,000 a year in 2011. More recently, The Garden Pharmacy in London’s Covent Garden closed in March 2014 citing huge bills, most notably £600,000 a year in rent and £230,000 a year in business rates.
Indeed it’s a topic close to the heart of many in retail as evidenced by the full page advert published in the Daily Telegraph last September (2014) by Retra, the British Retail Consortium and firms such as Lloyds Pharmacy, Boots, GNC, WH Smiths, Argos and Mothercare.
Many are of the view that in the internet age, why should business rates be based purely on the physical space used by a firm. Reports have noted that both Asos and Harrods have similar turnovers, £716m and £769m respectively, but have wildly differing business rates – £11.5m for Harrods and only £935,000 for Asos.
Elizabeth Ruff, a partner in city law firm Fox Williams, thinks it’s not surprising that among the most frustrating subjects for businesses is their liability for business rates. “Having been on the scene since 1990, business rates, in 2013-14, brought in some £20.5bn in England,” she adds.
New review announced
The pre-election government listened and the (then) chief secretary to the Treasury, Danny Alexander, announced “the most wide-ranging review of national business rates in a generation”. The stated intention, says Ruff, is to examine the current structure, the current use of properties by businesses and review other countries’ systems to ensure that any recommended changes reflect the way that business has changed.
The government review contains a series of questions to be considered and has invited comments from all interested parties such as ratepayers. (The review can be read at http://tinyurl.com/nomzvp7 and the deadline for comments is 12 June 2015.)
The review is an interesting move that followed a December 2014 commitment to conduct a review and implement a £1bn package to reduce business rates in 2015/16, the aim being to support smaller businesses and to ensure the future of the high street.
Whether or not what will be delivered will make a difference is debatable, but from 1 April 2015 the government implemented (among other things) an increase in the relief to all occupied retail properties with a rateable value of £50,000 or below to £1,500 (from £1,000) for the period to March 2016; increased by 100% small business rate relief to 31 March 2016; capped the rise in the business rates multiplier at 2%; and extended transitional rate relief to support 16,000 small business facing significant bill increases due to the ending of transitional rate relief.
Challenge under the present regime
Of course any changes following the review will take time to implement, so the question needs to be asked – what can firms do now to lower their business rates?
According to Louise Hebborn, a partner at Stephensons Solicitors, business rates can be challenged through an official appeal process via the government’s Valuation Office Agency (VOA). She says that there are four grounds to appeal – that the valuation was wrong; the property has been changed and should be reflected in the rateable value; an alteration made to the valuation is wrong; or the property’s been incorrectly split into more than one listing, or combined with others into a single listing.
There are various ways to challenge a rating and businesses should seek advice from a professional advisor including a solicitor, the Royal Institute of Chartered Surveyors, the Ratings Surveyors Association and the VOA.
Hebborn makes the point that road improvements, road closures and upgrades to transport infrastructure cn be disruptive and restrict access to for deliveries and customers. Under current law, there is no compensation available for loss of trade. For disruption over a sustained period, it may be possible to apply for a temporary reduction in the business rate, because the highway works may have affected the rental value of the premises over that period.
She adds: “If a business is affected by local disruption, businesses should contact the VOA to lodge an appeal to have the rateable value of the property temporarily reduced for the period of the works.” The VOA is at www.voa.gov.uk.
There are various other ways to seek to lower liability. There have been instances of businesses shutting off floors of their premises to reduce their bill significantly; if part of the building is empty and not being used, it can qualify for rate relief. Likewise, an empty property is exempt from paying rates for three months after it becomes vacant. If the premises are an industrial/warehouse building, it may gain a further three months relief.
As for other options, businesses that relocate to one of the new Enterprise Zones can take advantage of a 100% relief to their ratings bill for five years to a maximum of £275,000, and rural businesses are eligible for relief, aimed at encouraging small businesses to remain open in more remote areas.
Time to pay
Businesses that are experiencing particular hardship can contact their local authority who have the power to provide rate relief for struggling companies. Business Debtline echoes this advice with a useful page (at http://tinyurl.com/qc5khdh) that offers guidance to those in financial difficulty.
Lastly, from April 2014 firms can benefit from business rates being spread over 12 months instead of 10 months.
A government consulation closes on 12 June.
Firms can appeal their business rates charge via the Valuation Office Agency.
Those having trouble paying their rates can seek help from their local authority.
Good professional advice is key (don’t respond to cold calls offering assistance).
As at 1 April 2013 there were 1.873m business properties paying business rates at an average rateable value of £32923. Business property taxation in the UK (1.6% of GDP) is the second highest in the world with only Israel higher at 2.3% of GDP. (Source: http://www.ifs.org.uk/budgets/gb2014/gb2014_ch11.pdf)