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The Late, Great Business Rates Debate

View profile for Robert Taylor
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Cast your mind back to April 2010. Gordon Brown had just been caught calling a pensioner “bigoted.” The volcanic eruption in Iceland had just stopped 10 million travellers from reaching their destination. Business rates had just been revaluated.

Ah, good times.

Well, since then, kind of a lot has happened.

Luckily, we haven’t had another volcanic eruption – but then, we’ve definitely had a political one. Gordon Brown hasn’t publicly called anyone a bigot since then, but his successor was accused of doing that thing. And, for the first time since April 2010, business rates are about to be revaluated once more. 

The subject of business rates has caused hysteria amidst companies across the UK; many afraid that the increase in rates will drive them out of business. Senior ministers are now facing a potential backbench rebellion over the proposed rise in business rates, and even TV celebrity Mary Portas has chimed in with her opinion, predicting that a third of independent shops will be killed off by the imminent tax hike.

While Communities Secretary Sajid Javid insists that most firms won’t see a rise in their bills, this uncertainty doesn’t bode well with a big chunk of British businesses.

So, what are business rates?

Business rates go back a long time: 1601 to be precise.

It came as part of the Poor Relief Act 1601 with the intention to support the poor by charging property owners (both business and domestic) a certain amount in tax. The amount of tax payable was determined by the value of your property, as estimated by government surveyors. So, if your property was located in London and therefore had a higher value, you would pay more in tax. Fair?

Well… Not exactly.

Flash forward 390 years and the government finally realised that this may have been one of those “good in theory, not in practice” ideas. After all, the value of your property is something you have little control over. Factors such as location are completely out of your hands as a property owner; so if your property is in an up and coming area, your rates bills will increase regardless of your own finances. That’s why in 1991, the government replaced domestic rates with Council Tax. This was a more stable option; and proved to be more predictable: especially because the property values on which Council Tax is based on haven’t been updated since then.

However, for businesses, nothing changed. Each year, business rates raise £25bn for the Exchequer, and so the government aren’t exactly eager to re-evaluate the system.

While the last valuation was supposed to happen in 2015, it was delayed so as to not coincide with the general election. This was a temporary solution – sure, there was a lot going on, the government were busy... We get it. Admittedly, if I make plans for the weekend, I’ll put off cleaning the house until the following Saturday. But by that point, it’s an absolute mess. Black bin bags and rubber gloves are essential.

Why is this a problem?

Much has changed in the last two years, and the commercial property market is no exception. In places like the Midlands and the north of England, property values have fallen significantly. However, occupiers of these properties are still paying a rate based on the valuation that took place in 2010. The revaluation will benefit these business tenants, as they will be paying a more reasonable rate – if any. However, that doesn’t change that they’ve still been paying far too much for far too long.

On the other hand, businesses occupying expensive, high-street properties are facing the prospect of huge increases to business rates that they fear will price them out of their property. Shops, hotels, cafés, pubs and restaurants across London will bear the brunt of this overhaul, irrespective of how profitable their business is. On Regent Street, business owners fear the increase may be up to 87%. In The City of London, businesses who rent offices are looking at a 34% increase. Even sites such as the O2 in London are set for a 142% rise, and the Tower of London a 90% rise.

Sure, there will always be winners and losers when it comes to business rates.

But when you’re losing that hard, you may wonder why you’re still playing the game. This is how small business owners across the capital city are starting to feel, and it’s no wonder. How can a small grocery shop on the high street be expected to pay so much in tax, simply because they operate from a popular location?

What does this mean for my business?

Depending on the location of your business, the revaluation to business rates will either see you win or lose. For example, if you’re operating from premises in Bolton or Blackpool, you’ll see a nice drop of around 56%, which we can agree, is long overdue. In fact, according to David Gauke (the Chief Secretary to the Treasury) far more businesses will benefit from the revaluation than lose out. “On average,” he says “all areas will see their rates fall, except London.”

And it’s true, this is great news for businesses across the North. Finally, it’s time to get some relief from years of overpayment.

Among the changes, premises with a rateable value of £12,000 or less will not have to pay any rates at all, after previously having to pay 50%. According to the government, this covers about 600,000 businesses across the UK.

So, at least there’s a silver lining.

But what about the South?

Gauke claims London to be the only victim, but shops across the South East are already bracing them for a tough year. In Southwold, a seaside town in Suffolk, a family-run butchers has put up a banner reading “SOS – Save Our Shop” and “Dear Mrs May – please listen to us urgently before we’re gone.” With the prospect of their yearly rate bill jumping from £7,000 to £19,000, this doesn’t seem like an outrageous plea.

“You could probably fit my shop into Mr Gauke’s sitting room,” claims Tom Innes of Monmouth, whose wine shop will face a £2,000 increase in rate bills this year. “It doesn’t work out equal for people like me: I fall through the cracks. But he doesn’t care about that.”

“Chill out! It’s not that bad!” was essentially how David Gauke responded, claiming that this has all been scaremongering from critics. However, as April draws closer, it’s understandable that businesses across the South aren’t particularly in the mood to chill.

Business groups and Tory MPs are urging Phillip Hammond to use next month's Budget to mitigate the impact, and Mr Hammond claims to be “listening” to these concerns.  Well, we’re glad you’re listening, Phil, but soon these businesses will want answers to their questions: Will they be able to stay open? How will this affect high streets across the South?

How can you help my business?

If you have concerns about the imminent change to your rates bills, get in touch with one of our specialist business lawyers today. We’re always ready to look outside the box to find new solutions to help your business thrive, whether you’re in London, Blackpool or tucked away in the countryside.

When we started 360 Business Law, our aim was to provide high-quality legal services to businesses across the UK.

“Yeah sure, I bet all the law firms say that,” I hear you say.
And they do. But that doesn’t necessarily mean they deliver. 

By operating as a virtual law firm, we aren’t able to brag about our fancy central London offices. However, this is a sacrifice we’re willing to make. And not only because of business rates! By cutting the ridiculous costs of renting out, we are able to afford industry-leading business lawyers from around the globe, each with a minimum of 5 years experience under their belt.

As a result, we’re able to charge fair, realistic prices.

You pay for the advice and the advice alone, not to cover our overheads.

Unlike business rates, there are no losers here.

This is a win-win, for our business and for yours.

For strategic legal advice from expert business lawyers, get in touch with us on  01276 804432 today.