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The raft of business rates measures announced in this autumn’s Budget – worth £7bn over five years – will be welcomed by many businesses, particularly in the retail, hospitality and leisure sectors. But others will be left disappointed the government did not go further when viewed against its previous commitment to fundamentally review the rates system.
The impact of commitments made during the pandemic cannot be underestimated. The Business Rates Review: Final Report, published alongside the Budget, makes clear that the review took place during an unprecedented period of economic disruption and underlined the government’s belief in shoring up the public finances. It continues to see business rates – worth £25bn per year in England – as an essential component of the business tax mix. Against this backdrop, the government was not prepared to entertain a radical overhaul of rates.
Instead, the nature of business rates and its method of valuation will remain unchanged, but the government has committed to a number of measures which it says will reduce the burden of rates on businesses.
Businesses in these sectors will see their 2022-23 rates liability halved, subject to a maximum relief of £110,000 per business. The government says this is a cut worth £1.7bn.
It will be a welcome boost for these sectors which, as some of the hardest hit by the restrictions of the last 18 months, have already seen significant rates support during the pandemic.
In recognition of the unprecedented difficulties of the pandemic, the planned increase in the multiplier for 2022-23 will be cancelled. The government says this will be worth £4.6bn to businesses over five years.
Other changes to the multiplier are on the horizon, including making CPI the default measure of inflation used for uprating, and clarifying which businesses are eligible for the small business multiplier. The government plans a further technical consultation on these points later this year.
In April 2023, rateable values will be adjusted to those at the April 2021 revaluation date. Following that, revaluation will occur every three years, rather than the scheduled five years (although in practice that schedule has not been met in the last two rounds).
The government says this will make the rates system fairer and more responsive to economic change. There is also a risk that it may increase the burden on the system through the potential for more frequent expensive challenges to values. To combat this, businesses will have new duties to notify any changes to the occupier details or physical property characteristics including providing rent and lease information.
The government will consider the possibility of annual revaluations ‘in the longer term’ and will also look to shorten the gap between each valuation date and the compilation date.
As a result of the shorter revaluation cycle, a consultation will be launched in 2022 on potential changes to transitional relief regime from 2023. Current transitional relief measures are extended to 2023 to dovetail with the delayed revaluation.
From 2023, this new relief will enable businesses to make eligible property improvements without incurring an immediate increase in rates liability. For 12 months, they will pay no extra business rates. The detail of the implementation of this relief will be subject to consultation. The government will review the relief in 2028.
Also from 2023, an exemption will apply for investment in eligible onsite renewable energy generation and storage, for example solar panels and battery storage.
Whilst keen to point out that no decision has yet been made, the government continues to explore the idea of an Online Sales Tax as a way to rebalance tax liability between the high street and online retail businesses. Accordingly, any future Online Sales Tax would be used to fund business rates reductions. A further consultation is expected on this.
Sweeping though they are, the government’s measures are not the fundamental overhaul of the rates system which some had hoped for. It will never be known how much more radical the measures may have been in the absence of a global pandemic and the significant fiscal commitments made as a result.
However, the government has offered significant support to ratepayers generally, through the freezing of the multiplier, and particularly to those in hard-hit sectors through the 50% discount.
The new reliefs for property improvements and investment in green technologies will also be welcomed by many. The green technology investment relief is something renewables campaigners have been suggesting for some time and is aligned with the increasing emphasis many businesses place on their sustainability goals.
There are strong opinions on either side of the argument around the possibility of an Online Sales Tax. The government has delayed having to come to a view on that for now, but a decision will have to be made following the upcoming consultation. It will be difficult or impossible to satisfy all stakeholders.
TLT has extensive experience in all aspects of business rates. Get in touch to find out how we can help you.Contributor: Matt Battensby
05 November 2021