Blake Penfold, the author of this article, is a business rates consultant at GL Hearn and at http://blakepenfold.com
The burden of business rates was a recurring theme of press coverage in the lead up to Budget 2016. In the event, the Chancellor’s announcements on business rates had a “jam tomorrow” theme, rather than offering any immediate relief to major ratepayers in the UK, whose property taxes are the highest of those in any major economy, according to a recent OECD survey.
So, what did the Chancellor offer business ratepayers? The key announcements from Budget 2016 relate to improvements to rate relief for small businesses.
In the Autumn Statement 2015 it was announced that small business rate relief would be doubled, from 50% relief to 100% relief for 2015/16. As part of the Budget Statement, this doubling will be made permanent from 1 April 2017. As an additional benefit to smaller businesses, the threshold for 100% rate relief will be raised from rateable value £6,000 to rateable value £12,000; also from 1 April 2017. The effect of this, according to the Chancellor, will be to remove 600,000 businesses from paying business rates.
It is important to note that not all properties with low rateable value will benefit from this relief. The relief is intended to apply to “small businesses” and will normally apply to ratepayers occupying only one property or, where the business occupies more than one property, the total rateable value of all properties occupied falls below the exemption limit.
In order to avoid unfairness at the margin, the Chancellor also announced that properties with rateable value between £12,000 and £15,000 could benefit from small business rate relief on a tapered basis falling from 100% at rateable value £12,000 to zero at rateable value £15,000.
There is further benefit for all ratepayers in respect of properties with lower rateable values. At present the supplement that pays for small business rate relief (which is an additional 1.3 pence on top of the normal Uniform Business Rate (UBR) multiplier) is paid by all properties with a rateable value above £18,000, or above £24,500 in London. From 1 April 2017 this supplement will only be paid in respect of properties with a rateable value of £51,000 or more. This will offer a saving of about 2.5% in rate liability for some 250,000 properties that will pay the lower level of UBR from 1 April 2017.
From 2020 the UBR multiplier will be linked to the Consumer Prices Index (CPI) measure of inflation. At present the UBR is increased in line with the Retail Prices Index (RPI) inflation each year. Recently CPI increases have been about 1% lower than RPI increases.
Looking to the longer term, the Chancellor also announced an aim to introduce more frequent revaluations for business rates. This is an “aim” rather than a policy and is the subject of a discussion paper published since the Budget. The suggestion is that revaluations should take place at least every three years.
The Chancellor had already announced a move to increase the percentage of business rates retained by local authorities from 50% at present to 100% by 2020. He has now announced that for Greater Manchester, Liverpool City Region and Greater London that change will be brought forward to 2017. Coupled with this, the Greater London Authority will take on responsibility for Transport for London capital projects.
The final major announcement was about changes to billing arrangements. By 2017 all business rates bills will be in a standard format and ratepayers are to have the option to be billed and to pay online. By 2022 all local authority business rates systems are to be linked to the HMRC business taxation systems, with the aim of offering smaller businesses a business rates allowance in place of the small business rate relief.
The changes announced by the Chancellor fall far short of the fundamental reform of business rates that appeared to be on the agenda when the Chancellor announced a structural review of business rates, with the aim of making the tax “fit for the twenty-first century”.
The immediate changes are welcome but limited ones. The move to link to CPI is particularly welcome, but is delayed until 2020. The doubling of small business rate relief makes permanent and extends a relief that has been in place since October 2010. The move to take a significant tranche of properties out of the higher level of UBR will offer some limited relief but the worry is that the supplement paid by the remaining properties will be increased to make good the shortfall, and the Budget announcement contains no undertaking that this will not happen.
The longer term changes do not go far enough to address the fundamental problems that have been associated with the tax for a number of years now. The tax rate, which will be nearly 50% for larger properties from 1 April 2017, is well above other levels of corporate tax in the UK and all international surveys point to the fact that UK property taxes are above property taxes in competitor countries in the EU and elsewhere.
In short, some very welcome but limited immediate measures bolstered by a rather timid agenda for longer term changes, which focuses on changes to billing systems and more frequent revaluations, rather than on a fundamental rebalancing of taxes on property.
For further information, please contact Alison Mould, Partner, Fladgate LLP (email@example.com)