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Business Rates Changes: What They Mean for Small Businesses
Firstly, what exactly are business rates? Business rates are a tax on business properties, which is set by the government and collected by local authorities so that those who occupy non-domestic properties contribute towards the cost of local services. Shops, offices, pubs and warehouses all must pay business rates to their local council. The amount businesses pay is based on how much annual rent could be charged on the premises, which is known as the rateable value. Rates are the third biggest outgoing for many small businesses after rent and staff costs (Source: BBC).
What is changing?
Properties are going to be re-valued by the government for the first time in 7 years. Most properties value would have changed since 2010, so business rates for that property is either going to increase, stay the same or decrease. There are winners and losers to the business rate system, for example rate bills for shops on Blackpool High Street will fall by around a half. However, shops in Regent Street in London face an 84% increase in their business rates bill, which for many small businesses is simply unaffordable. Business rate changes are particularly hard on independent small businesses, who have to cover the cost of rate changes by absorbing the costs or passing it onto their customers. Many of the biggest retailers such as ASOS and Amazon are set to benefit from reductions in rates on their out-of-town sites.
Why are business rates being re-evaluated?
Business rates are re-evaluated every 5 years by the government, the last re-valuation took place in 2010 and the latest re-evaluations were delayed in 2015 because the government wanted to avoid ‘sharp changes’ to business rates bills.
Who are business rates paid to?
Currently, English authorities keep hold of 50% of locally-collected business rates while the other 50% goes to the central government, which is then redistributed back to local authorities. Local authorities use this money to pay for local services and infrastructure.
What does this mean for the serviced office sector?
An increase in business rates for business centres is negative because the cost of paying the rates bill will have to be passed to clients to cover the bill. This means higher monthly rents which will discourage entrepreneurs and business owners from expanding into new offices.
Can I get business rates relief?
All businesses with properties that have a rateable value over £12,000 must pay rates. If your property has a rateable value between £12,000 and £15,000 you will get some tapered relief. Charities and sports clubs get up to 80% rate relief. Empty, newly occupied properties, and businesses in enterprise zones can also apply for relief. However, you must apply for business rate relief, it isn’t just automatically given.
Business rates are a big concern for all sectors, a 13-strong group of trade bodies have urged a government rethink on plans to prevent firms appealing against business rate rises. The Business Centre Association (BCA) is part of the 13-strong group and is working hard to put pressure on the government to re-think their proposals.