The government review “paves the way for changes” to the current system, which has been in place since 1988, according to the Treasury. The findings could be included in the Budget next year.
Britain’s current system has been widely criticised because of the way that rates are charged to retailers based on the value of the company’s shop or other commercial property, rather than turnover or profit. Business rates bring in around £25bn annually to the Treasury, but retailers argue that they are not closely related enough to actual profitability and say the system gives online retailers an unfair advantage.
The Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) have welcomed the government’s announcement. Other organisations have also voiced pproval.
“The chancellor must seize this opportunity to readdress the balance of our prospering economy and restore faith amongst UK businesses,” said Tim Ryan, executive chairman of UNA, an organisation owned by 12 of the largest regional insurance brokers. “To do this, the government should follow up on its Autumn Statement promise to review the structure of how business rates are applied. This would reward the UK’s growing and ambitious firms with the suitable tools to get on with their jobs and ensure plans become a reality.”
With greater clarity on business rates, SMEs will feel incentivised to make crucial investment decisions, he said. “Although the signs of recovery are evident, it would be naive to stifle that growth by hindering businesses once more. UK SMEs are the lifeblood of our economy. A review of business rates will play a key role in determining who sinks and who swims at the general election,” Ryan added.
Read more about business rates in the UK:
- Autumn Statement 2014: Extension of business rates relief
- Plaid Cymru pledges to scrap business rates for SMEs
- FDs would most like to see a reduction of business rates
Mark Hastings, director general of the Institute for Family Business, said: “All businesses need a competitive tax environment, including family run SMEs, to ensure they survive for the long term. Any review of business rates must reflect the long term outlook of family firms, and cannot be a short-term measure. What family SMEs need to be able to grow is certainty in the regulatory and tax environment to allow them to plan for the future.”
It’s not just retailers are who are concerned. According to Askar Sheibani, CEO and founder of telecoms repair and support company, Comtek, which has operations both in the UK and the Netherlands, the company currently pays thirty times more for business rates in the UK, even though the properties are a similar size.
“The current business rates system, which is calculated according to rental value of the property a company uses, is outdated and a completely unmerited way of taxing companies,” said Sheibani. “While the government has taken steps to lower the business rates for some organisations, such as those adhering to specific criteria and located in Enterprise Zones, the it must overhaul the entire process. Instead of basing the rates calculation on property value, more focus should be placed on profitability and performance, so as to encourage, rather than hamper, business growth.”
He added: “Small to medium-sized enterprises should let their voices be heard in the review today – where businesses will have the opportunity to answer questions on the Treasury’s website – as this will provide each with the opportunity to invest in revenue-generating activities and, ultimately, boost Britain’s ability to compete internationally.”
Other small businesses expressed dissatisfaction with the current arrangement. John Letchard, who runs three convenience stores in and around Wolverhampton, said: “Business rates are one of my biggest outgoings. The way they’re calculated makes no sense at all.” He is concerned about the unfair advantage that the current system gives to internet retailers and large companies. “It’s just not right – traditional small businesses are being penalised.”
Anwar Patel who runs a number of food, stationary and hardware shops and a wholesaling business around West and North London said: “The government needs to act now. It talks about helping the high street but then makes us pay huge rates for being here. We’re not asking for a hand out, the system just needs to be fair.”
Simon Tivey, head of rating at PwC, believes the business rate review could herald a “sea change” in the government’s approach.
“It’s also good to see a desire for rate reliefs to be used creatively to assist business start ups, growing businesses and promote economic growth generally. Over the last few years local authorities have found it difficult to make rate relief available to reflect short term reduced use of a property. Likewise, fewer authorities have been able to include rates relief in packages to attract inbound investment. Perversely, it seem that local rates retention has actually stifled the ability for local authorities to offer assistance through the rating system.
“Still on the table is the idea of taking up to half a million very small properties out of the rating system altogether. This makes a lot of sense. As long as rabbit hutches at £197 rateable value are in the rating list, there’s a need for change. You just need a simple mechanism to ensure large companies that use small properties do not benefit unintentionally from this much called for reform.”
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