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Small businesses cheered Chancellor George Osborne’s promise to review the business rates system in his autumn statement. But any changes are still some way off and many are wondering if the proposed reforms will go far enough to make a difference.
Currently rates are charged on physical premises including shops, offices, factories and pubs. It is often these high costs that are also behind some of the large number of vacant properties on Britain’s high streets.
The government has, however, recognised there is a problem with the rates system – set to bring in £22.4 billion to government coffers in 2014-15 – as demonstrated by short-term fixes including discounts to retailers, rates caps and rates relief schemes for small businesses.
But more needs to be done, companies say.
”Business rates are one of those costs that can take small or starting businesses by surprise,” says Douglas Haig, managing director of James Douglas Sales & Lettings in Cardiff.
“For the last few years, with pressure on the economy and empty shop fronts and business units, the business rates have been higher than the rents in many places.”
The agent’s sister company Seraph Property Maintenance had been looking for premises to rent for waste management, tool storage and van servicing for the past two years.
“We have negotiated some excellent rents on ideal units but the size means that the rates are simply prohibitive for this expansion.”
So what could – or should – deeper rates reforms look like?
Bryan Johnston, external affairs adviser at the British Retail Consortium (BRC), whose members are hit harder than most businesses by rates because they often need a physical presence on high streets, says rates a big issue for small businesses.
The BRC would like to see businesses whose premises have a rateable value of below £12,000 removed from the system altogether.
The consortium also wants not just the rates themselves but the way they are levied to be re-examined. “It’s not just the cost but the amount of time spent processing them that can amount to hundreds of pounds,” says Johnston.
Ian Baxter, founder of logistics company Baxter Freight, based in Nottingham, received a bill for about £40,000 when the company, now just over a year old and employing more than 70 people, moved into its 7,500 square feet premises last year.
“We were a brand new company. We hadn’t yet sent an invoice. We had no income yet but we had start-up costs and were trying to build a business,” Baxter says.
Having previously run another successful freight business, Baxter wasn’t too fazed by the rates bill, but believes other start-ups must be.
“It has got to be a deterrent to people starting businesses. There ought to be a scheme for genuine new businesses of rebates or giving people more time to pay,” he says.
“It’s correct that when businesses succeed they should contribute through taxation but I see rates as like a poll tax for companies – a tax that doesn’t reflect the recipient’s ability to pay. The rates system needs to be more related to profitability of businesses.”
The government has postponed a revaluation of rateable values from this year to 2017.
Baxter says: “It should be committing to leave the revaluation until there have been genuine reforms of the system to help small businesses and the high street.”
Sam George, managing partner at QualitySolicitors Rubin Lewis O’Brien in Cwmbran in Wales is not hopeful that rates bills will fall across the UK.
“One of the requirements of the review is that it must be fiscally neutral and so the size of business rates bills in England seems unlikely to fall,” says George.
However, devolution of business rates to Wales this year will give the Welsh government control over the charges from April.
“A new system which takes account of economic cycles, such as a sales or profits tax, would perhaps be easier to bear, he added.”
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