Should business rates be scrapped?

High street
By Eleanor O'Neill, Student Blog

10 August 2017

Business rates have been subject to growing dissatisfaction recently, as changes to the amounts owed impacts small business owners. What are they and how do they function?

The tax rates are charged to non-domestic properties like offices and shops by local councils in accordance with government guidance. They are the third largest expense for most small enterprises after location costs and payroll. The total is determined by property assessment, contents value and sector. 

Changes for England and Wales

What has been described as "the largest changes to business rates in a generation" was brought into effect in England and Wales earlier this year. Influenced by rising property values in the south, the change saw thousands of SMEs take a big financial hit.

Reassessments of business rates are supposed to be carried out every five years, adjusting for the economic status of the UK and fluctuations in real estate value. However, the most recent assessment was delayed by two years in an attempt to avoid any dramatic impact from the global economic crisis. 

The result has meant a stark change for businesses, particularly in London and other high-value areas, as rates were previously based on the 2008 market.

survey from the Federation of Small Business (FSB) found that 36% of small firms expected their rates to rise and 44% thought they would likely end up paying more than £1000 in excess per annum.

Circumstances like these have led some to call for an overhaul of the system.

Is it a regressive tax?

FSB National Chairman Mike Cherry said: "The business rates system is an unfair, regressive tax which hits small firms before they’ve had the chance to make their first £1 in turnover, let alone profit. The major win at the latest budget to exclude 600,000 small firms from the business rates system remains hugely important. 

The seven-year gap between this year’s revaluation and the last has stored-up all kinds of problems for our business community.

"However, our survey shows the delayed revaluation harms too many small businesses who face unsustainable and unaffordable rises. The seven-year gap between this year’s revaluation and the last has stored-up all kinds of problems for our business community."

In response to such criticism, Chancellor Philip Hammond announced a small business rates relief fund to aid around 25,000 businesses who suffered a 3000% rate increase when the new system was applied. 

However, the execution of these plans has been beset by delays and most have still not received their adjusted bills despite the 21 August 2017 deadline for software updates to check bills.

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