Business rates news 29th September 2016

Large businesses could see their rates bill soar by as much as 45% next year under government proposals for a transitional relief scheme to help firms cope with a shake-up of business rates next April.

The plans, which were published yesterday ahead of a full draft of the new rates being released tomorrow, would cap transitional relief for small property owners - those with a rateable value of less than £28,000 in Greater London and £20,000 elsewhere – to 5%.

However owners of properties with a rateable value higher than £100,000 would have to stomach a rise of between 33% or 45% in the first year, according to the two alternative proposals now being consulted on by the government. First-year increases were previously limited to 12.5%.

Meanwhile those businesses with properties in line for big falls in their rates as a result of the revaluation will see their decreases limited to only 4.1% in the first year – a move which industry experts yesterday denounced as “madness”.

Gerald Eve’s head of business rates Jerry Schurder, said: “The Government claimed it would reform business rates to deliver a fair, simple and transparent tax and its latest proposals breach each of these commitments. It rightly took 600,000 small firms out of business rates entirely at the last Budget, but has now decided to hammer the occupiers of large properties.”

“How businesses can accommodate year-on-year rises of 45% with only 6 months’ notice is beyond me, but even worse is the severely restricted falls for those properties that should have been in line for greatly reduced business rates bills."

Next April’s revaluation will usher in the biggest changes to business rates on the high street in almost a decade and will effect some 1.8m business properties in England and Wales.

Although usually reassessed every five years, the government decision to postpone the last revaluation in 2015 means that it has been a full seven years since business rates were last updated.

Current rates are based on rental values set at the bottom of the market in 2008, and as a result many commercial properties are facing significant increase in rates following strong rental growth in that period.

Draft estimates published by the government yesterday showed that only businesses in London are likely to face a hike in business rates, with retailers hit the hardest.

Business rates for retail properties in the capital will rise, on average, by 14% with industry analysts forecasting increases of 80% to 120% for shops on Oxford Street, Regent Street and Bond Street.

Rates bills for office properties are also predicted to rise sharply, increasing by 10% on average. According to Colliers International, draft rateable values accidentally published by the Valuation Office Agency earlier this week revealed that occupiers of central London skyscraper will be among the worst hit, with tenants on some floors in the Shard steeling themselves for a 50% business rate rise.

However, elsewhere in England and Wales rates are set to fall. Offices in the North East as well as Yorkshire and Humber will see the biggest decline of 21%. In the south west the estimated decline in bills for retail and office properties was 14% and 10% respectively while in the south east they will fall, on average, by 8% and 3%.

Local Government Minister Marcus Jones said the changes will ensure “fairer bills for businesses up and down the country”, with only a small minority seeing an increase whilst nearly three quarters of companies will see no change at all.

However lobby groups criticised the move, with retail industry body slamming the options for transitional relief as “catastrophic” for West End businesses.

A spokesperson said: “The suggested options will not lighten the burden and retailer profits will be hit by up to 25% in a fragile post-Brexit economy, leading to reduced investment and job losses around the UK. We maintain that transitional relief should see any rate rise capped at 12.5%, which would significantly ease the impact of the rise for businesses during an uncertain time."

John Webber, head of rating at Colliers International, said the firm will be lobbying for the abolition of the downward transation scheme altogether.

He said:“The government is making it clear that three out of four business rates bills will stay the same or fall. But they are not falling enough. Some depressed parts of the UK should be expecting 40 per cent reductions in business rates: these latest proposals mean they will only see a fall of two per cent next year. Likewise, we were expecting increases in London, but our models didn’t include three-digit increases in two years for some parts of central London.

“By limiting the downward transition for much of the country, depressed areas already buckling under their business rates’ bills will struggle to see the much-vaunted government ‘fairness’ in these business rates figures.”

David Jones, senior director and head of business rates at Bilfinger GVA: “The new RV £100,000 threshold, above which the higher caps will apply, affects a high majority of business in the capital and will apply to what represents relatively modest levels of occupation. With uncertainty over Brexit and concerns over business relocations out of London, hitting business with significant and unexpected business rates increases seems poorly thought through."

"We have specific concerns for the vibrant medium sized retail and independent restaurants across the capital who will experience the very highest increases, facing fixed costs increases which could severely hinder their ability to trade.”

Paul Easton, head of business rates at Lambert Smith Hampton, added: “Whilst today’s announcement does give a useful, broad indication to the changes, the devil will really be found in the detail. A second, more comprehensive version of today’s announcement will be published on 6 October 2016, following the issue of the full draft list on 30 September. Today’s figures clearly mask wide variations. We need to thrash out the full implications for ratepayers so they can take informed decisions on how they will react to these figures.