It’s the review
that’s supposed to happen every five years, but this time around, it’s took
seven years as it was postponed until 2017.
The time has arrived for the Valuation Office Agency (VOA)
to reassess the 1.96 million non-domestic premises around England and Wales to
produce the latest
draft Rating List, determining the business liabilities of every business
across England and Wales.
…For the next five
years!
For those who have only been in business since after 2008,
your business rates are based on the 2010
valuation by the VOA. They review the Ratings list of all non-domestic
premises every five years.
The business rates you pay are based on:
·
Your industry
·
The cost of plant machinery and
necessary operational equipment
·
Your property price
·
Lease cost
Problem is…
The current business liabilities are based on post-recession
property rates that have fluctuated massively between 2008 and 2015. The rates
are valued two years predated; therefore the rates coming into effect on 1st
April 2017 will be based on the valuations from 2015.
Confused?
Here’s what happens….
The business rates payable are based on the properties
Rateable Value two years prior to the Rates Revaluation that the VOA is
supposed to conduct every five years.
This time around, it’s far more significant than usual
because this Rates Revaluation has taken seven years and come post-recession and
post-Brexit. Businesses are looking for clarity while the government is looking
for money.
Businesses Fund Communities
The rates paid through business liabilities are split 50/50.
50% go to central government, the other 50% to the Billing Authority (local
council) which it retains for funding community projects.
The system has been described as being broken because it
results in rich areas keeping more money, with the poorer getting worse because
of a lack of investment. Many areas have witnessed the effects of this scheme
when high street stores collapsed, causing a ripple effect across communities
when local authorities faced financial strain and severe budget cuts.
The other 50% of revenue though is pooled by the Central
Government and then used to fund poorer communities through Government Grant
Schemes. In former Chancellor’s George Osborne’s last budget announcement, when
he described the “biggest transfer of
power to our local government in living memory", he was talking about
changing the 50% split to allow for local authorities to retain all revenue
collected. That would result in even more mayhem to an already chaotic system,
so how the funds are to be split are still in discussion, but what’s not is
that there are…
Huge Changes Ahead (and not many
signposts)
Every business in England and Wales is going to be affected.
It’s estimated that the majority of smaller businesses will see a slight fall
in their liabilities, but on the other hand, there will be a 9% increase to the
business rates on a national scale.
How does that work?
London Foots the Bill!
That’s right…
The vast majority of communities are going to see slight
falls to business rates; however, because London has significantly higher
rental charges due to higher property prices, the operational costs for
retailers are going to be substantial, as high as a 415%
of an increase for stores operating on Dover Street, Central London.
The vast majority of stores in that area are multi-channel
retailers and also regional with some operating globally. The increases will
put financial strain on profit margins, and given some are chains, it will in
all likelihood take a ripple effect. Retailers will need to protect their
margins, which could see the less cost-efficient stores in other local areas
either close or relocate.
The retail sector has changed substantially over the past
seven years. The postponement wasn’t welcomed in 2010, and the repercussions to
the business community certainly won’t be welcomed this time around.
British Telecom has already announced they will be
challenging the Rates Revaluation by the VOA, as the firm will be hit with a
350% business liability increase, up from £165M per year to £743M from April of
next year. An increase that BT says has forced them into threatening to increase
consumer broadband prices around the London area and cut investment in
telecoms technology.
Available Relief for SMBs
·
Business properties with a
Rateable Value of £12,000+ have to pay the rates. Under that Rateable Value,
the rates won’t apply.
·
Tapered relief will be
available for properties valued between £12,000 and £15,000 so smaller sized
firms will be able to get some relief from the rates.
·
Between 50% and 100% relief is
available to local business owners operating in a local community with a
population of <3,000.
·
Up to 80% relief is available
to charities and sports clubs
·
Businesses operating within
Enterprise Zones, are empty or newly occupied can apply for relief, although
that’s not to say the application will be approved. It will only be considered.
The only exception to the Business Rates is religious
properties, and agricultural land.
Priorities Now!
The priority for every business owner between now and April
of 2017 should be on risk assessment because there is a huge risk of financial
interruption when the new rates come into effect on April 1st 2017.
As there are going to be winners and substantial losers,
with the cost of doing business based on the new rates remaining in place for
the next five years, there will be a transitional period for businesses to
benefit from staged rate increases. It’s not going to make it any less of a
financial burden because the bill will still need paid, but there will be
assistance available for those with higher than anticipated increases to their
business rates.
As all business owners will be affected either positively or
negatively, it’d be beneficial to open discussions between tenants and
landlords to begin negotiations of property lease prices in light of the
business liability rate changes due to come into effect in the next six months.
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