Business rates review 2021 – what your small business can expect

The Treasury has delayed publishing its review into business rates four times already. Rishi Sunak says the review will be published this autumn. What can we expect?

We seem to have been waiting to hear the review on business rates for some time. In March 2020, the government announced a new consultation and said that the first part of the business rates review would be published in the tail end of 2020, with the second part in early 2021. Since then the chancellor has announced no less than four delays to publishing its response and we are now waiting until autumn 2021 to learn the government’s full response to the consultation on reform.

>See also: Do I need to pay business rates working from home?

This delay is disappointing, especially since the Treasury Select Committee produced a very credible report with sensible recommendations in autumn 2019, which now seems to have been largely ignored – not to mention all the consultations and reviews we’ve had in previous years. Colliers has long been an advocate of reform and we fear such procrastination will have only meant more job losses across the economy as we wait for a proper redress of the system.

Business rates review 2021 – what to expect

There is no doubt the business rates system needs a radical overhaul. The system that provides £32bn gross (£26bn net) for local authority funding is under fire, primarily because it is trying to raise too much money from too few squeezed property occupiers – a situation which has become further exacerbated under Covid. The multiplier (the UBR) at 51p in the pound is effectively a 50 per cent tax and at that level is just unsustainable.

The system is also skewed against physical retailers who pay between a quarter and a third of the tax take (£7.6bn) in spite of the fact that the gross value added by retailing to the national economy (GDP) is less than 10 per cent (ONS, 2018). And this latter figure is probably lower following the Covid crisis.

‘We can’t afford to kick this can down the road any further’

On March 23, Tax Day, the government published an interim review on reform. Disappointingly this covered many of the same topics that had been discussed and agreed by the industry beforehand. However, what was heartening was that when listing industry responses to the various concerns about the businesses rates system, responses were pretty unanimous, with respondents agreeing:

The system to continue but in a reformed way rather than a total abolition. We agree – business rates provide an easy and manageable way to collect tax and, as a physical and property-based tax, one that is difficult to evade. More countries are introducing a property-based tax similar to the business rates system that we have in the UK, than are doing away with it.

>See also: How can I reduce my business rates in England? A small business guide

What respondents have called for

However, it was agreed that over the past 30 years various governments have overcomplicated the system, making it opaquer and increasing the level of this tax disproportionately. As a result, respondents to the consultation called for:

  • The tax take (£26bn) to be lower with rates to be reduced across the board
  • A reduction in the multiplier (the UBR used to calculate rate bills) which should be rebased to a sensible level that businesses can afford. Branded by Colliers as the “elephant in the room”, at current levels, at over £0.51, the multiplier is just too high. It is in effect a 51 per cent tax on the rental value of commercial premises. We believe that re-basing the multiplier to £0.30, the level it was in 1990 would be the most sensible and would take away much of the angst about the system.
  • A reform of the Reliefs system. Reliefs while necessary, have been handed out by politicians of all political persuasions over the last 30 years to satisfy short term political and not economic aims. They often become permanent and then baked into a business plan. We believe they should be reformed to avoid business rates deserts and loopholes and should be reviewed at every revaluation cycle – at least every 3 years “so the drug of subsidy does not become an addiction.” Interestingly the government has already moved to close the loophole over Holiday Home lets.
  • There should also be some extension of empty rates relief. Colliers believe the significant amount of long term empty commercial property in England has not been due to an unwillingness on behalf of landlords to let properties to hold on for long term gain, (as suggested by the Lyons Review) but more so due to a lack of market demand and long-term socio-economic factors. Instead of only the warehouse and industrial sector receiving the six months empty rates holiday we and other commentators argue this should be extended to the retail and office sector.
  • Plant and machinery clauses to be reviewed regularly to reflect the modern green age. Without a regular review, there will be inconsistencies and criticisms of the system. We believe all plant that is an integral part of the trade process should be exempted from business rates. This removes business rates as an obstacle to investment, allowing the rating system to complement government policy or targets and the UK to compete on the international stage.
  • More frequent revaluations and the removal of the transitional relief system. The five-year revaluation cycle (and this current cycle at seven years) is just too long. Colliers has joined others to call for a move to more regular revaluations or annual revaluations – so that assessments reflect values at the antecedent valuation date (AVD) more accurately during the life of a list, reducing the likely significant shift in liability following a revaluation. This provides greater certainty for businesses.The government has just announced a consultation on this issue, reducing the frequency of valuations from every 5 years to every 3 years. Whilst we welcome this, we are disappointed that the valuation date (AVD) will remain two years before the new list and not one. We are also concerned about the onus on ratepayers to provide more information about their properties on an annual basis placing more red tape on businesses at a time when the country was promised less.Even so a regular and shorter revaluation period is welcome and once established then a transitional relief scheme should be unnecessary.
  • Overhaul of CCA and the appeals system and greater transparency in working with the VOA.CCA, the business rates appeals system, is a total car crash- an unwieldy system, ill-equipped to deal with the number of appeals in the system, even before the Covid-19 pandemic. The VOA needs to be properly resourced to deal with the backlog and the move to more frequent valuations

>See also: What is the Valuation Office Agency? A guide for small business

  • Consideration of other taxes to reduce the burden of business rates. These included considerations of an online sales tax to help relieve the burden on physical retailers. Here there was some disagreement between respondents some of whom felt this would impact on consumer prices and would penalise those retailers who had had the foresight to move online.Colliers’ view is an online sales tax should be an amelioration rather than a replacement of the current system and should be ring fenced for the finance of local government, reducing the tax take from business rates applied across the board. It should be used to support a reduction in the uniform business rate, thereby making taxation fairer for all parties.A delivery tax could be part of this and help the green agenda. Indeed, the recent announcement at the G7 in Cornwall to capture tax from large global tech giants in a much fairer way, is another source of income that should be used to reduce the tax burden on ratepayers.There was some (reassuring) agreement across the board that the replacement of business rates with CVT (capital value tax) would be a disaster- which we totally agree with.The business rates review also needs to take a proper look at local authority financing generally. The Local Government Association has warned ministers that a planned shake-up of the business rates system must “recognise the importance of this income stream for funding local key services” and urged ministers to look in to new funding sources for councils as confidence in the current system dwindles.

Obviously, we’ll have to wait to see what the chancellor finally announces in his business rates review this autumn. He has certainly been given a decent blueprint for business rates reform. One thing is clear though- we can’t afford to kick this can down the road any further.

John Webber is head of business rates at Colliers

Further reading

What are business rates? A guide for small businesses

John Webber

John Webber

John Webber, BSc, FRICS, is Head of Rating Department at Colliers, a global professional services and investment management company.

Related Topics

Business rates
Rishi Sunak