The April budget brought about the first changes to business rates for 7 years…six months on, and with the Autumn budget on the horizon, what impact has that had on the commercial property market?
Business rates are a government tax on non-domestic premises; which is used to contribute towards the cost of local services. The calculation of business rates is based on the rateable value (RV) of a property. The RV is linked to changes in the property market.
In 2010 the market was still in turmoil following the financial crisis but over the course of the subsequent 7 years, property market values have (generally) been on the rise.
What are the changes?
The intention of the changes was to try and minimise the potential effects of RV revaluations, such as:
- Small Business Rates Relief (SBRR) has doubled. Businesses premises with an RV less than £12,000 will receive 100% relief and with an RV of £12,001 to £15,000, relief will taper from 100% at £12,001 to 0% at £15,000;
- Businesses which previously received SBRR relief and no longer qualify will be entitled to a £50 cap on the monthly increase in rates for this rating year;
- A multiplier is used for calculating the rates payable – with business premises’ with a RV of less than £51,000 (ie. small businesses) using a smaller multiplier, than those with a greater RV. The multipliers have been adjusted as follows:
Click here to view table.
(NB – London multipliers have a 0.5p premium)
4. Specific business types are also receiving targeted relief:
- Pubs with a RV of less than £100,000 (estimated 90% of pubs nationwide) will receive a £1,000 discount on their rates for this rating year; and
- Local newspaper shops will receive a discount of £1,500 per year for two years;
5. To ensure changes to your bill are phased in gradually over the next 5 years, transitional relief will be applied to your rates bill if your business rates increase by more than a specified amount.; and
6. From 2020 rates will switch from being linked to the Retail Price Index to the Consumer Price Index , at the current time, saving businesses money from 2020.
The effect on the market?
Whilst it is estimated around 3/4s of businesses will see no change or a fall in their bills, areas which have seen a rise in market value will be affected the most by the changes – with
London being the obvious example.
The tax is linked to the market price of the premises, not the business operating from the premises, meaning all businesses operating from prime locations will face the same increases in their rates, irrespective of the size or profitability of the business.
Some businesses have reported that they are feeling the strain of the extra financial burden whilst others have already announced their closures, just two months following the introduction.
Who will be affected?
It would seem inevitable that independent stores, cafes, restaurants and retailers located in central, prime or high street locations will be most affected by these changes and suffer increased in bills.
Stores that import goods could particularly suffer because of the fall in sterling over the last year, coupled with the uncertainty at the moment and the impact of what deal we strike with the EU in the Brexit negotiations (if we do not retain free trade).
It would seem that larger retailers will suffer less impact, particularly those who use out of town premises in cheaper areas, or are even simply off the high street.
What can you do?
Businesses could try to mitigate the hike by introducing more flexible space arrangements, such as sharing workspaces, renting out unwanted desks and increasing mobile working by employees.
Where these options are available, the existing owner/occupier must carefully consider whether to use a lease, licence or other occupation agreement for the sharing of the premises because what you can do will depending on the existing occupational document and each alternative can result in different rights for the new occupier (which in turn can have different effects on the premises and the owner’s ability to use, dispose or otherwise deal with the premises in the future).