With tax day looming - Is 2021 the year the government finally A=addresses the “Business Rates Crisis”?
The Government mustn’t brush business rates reform under the carpet when it delivers its interim report of the fundamental review of the system on Tax Day, on Tuesday, say business rates experts at Colliers.
The system which provides £32 billion gross (£26 billion net) for local authority funding is under fire, but according to Colliers who have been campaigning for change for years, the system should not be totally abolished but reformed with the Government making sure it has the following ten key action points on its agenda:
To resolve the current MCC (Material Change of Circumstance) debacle whereby hundreds of thousands of office based businesses are challenging their business rates bill for 2020/2021 on the grounds that many of them were directed not to use their offices during the periods of lockdown and staff were encouraged to work from home. This has resulted in financial hardship for many. Unlike businesses in the retail, hospitality and leisure sector, office based businesses have had no business rates holidays throughout the pandemic and as a result “in the largest number of MCC Appeals caused by a single event in rating history” over 400,000 businesses have started the CCA ( check Challenge Appeal system).
Address the Multiplier (the UBR used to calculate rate bills) and rebase to a sensible level that businesses can afford. Branded by Colliers as the “elephant in the room”, at current levels, at over £0.51, the multiplier is just too high. It is in effect a 51% tax on the rental value of commercial premises, Colliers argues the multiplier should be re-based to £0.30 the level it was in 1990.
The current high multiplier directly impacts on the decisions made by companies as to whether they open, close, or downsize their bricks and mortar estate. A tax that is now so high it impacts on these decisions, which in turn affects employment and investment, must change. If the multiple was significantly reduced to manageable levels most of the questions and issues surrounding business rates would largely evaporate.
Reform of the Reliefs Reliefs while necessary, have been handed out by politicians of all political persuasions over the last 30 years to satisfy short term political and not economic aims. They often become permanent and then baked into a business plan. Colliers believe reliefs should be reviewed at every revaluation cycle – at least every 3 years “so the drug of subsidy does not become an addiction.”
Extend Empty Property Rates Relief -Colliers believe the significant amount of long term empty commercial property in England has not been due to an unwillingness on behalf of landlords to let properties to hold on for long term gain, (as suggested by the Lyons Review) but more so due to a lack of market demand and long-term socio-economic factors.
Instead of only the warehouse and industrial sector receiving the 6 months empty rates holiday Colliers argue this should be extended to the retail and office sector.
Introduce Three Yearly if not Annual Revaluations The current five-year revaluation cycle (and this current cycle at seven years) is just too long. Colliers call for a move to more regular revaluations or annual revaluations – so that assessments reflect values at the antecedent valuation date more accurately during the life of a list, reducing the likely significant shift in liability following a revaluation. This provides greater certainty for businesses. Once a regular and short period is established between revaluation cycles then a transitional scheme is unnecessary
Review Plant and Machinery- There should be regular reviews of what is or is not rateable in relation to plant and machinery. Without a regular review, there will be inconsistencies and criticisms of the system.
All plant that is an integral part of the trade process should be exempted from business rates. This removes business rates as an obstacle to investment, allowing the rating system to complement government policy or targets and the UK to compete on the international stage.
Consider introducing a delivery tax / online sales tax - To reduce the discrepancies between what on-line retailers pay in business rates tax and the physical high street retailer. The current business rates system is massively skewered against the physical high street retail sector who pay £7.625 billion a year or nearly a third of the total business rates burden. Such a burden proved lethal for many retail businesses even before the pandemic.
Colliers says there are merits in an online sales tax – but as an amelioration not as a total replacement of the current system. An online sales tax would work if the tax take is ring-fenced for the finance of local government and goes towards reducing the tax take from business rates applied across the board. It should be used to support a reduction in the uniform business rate, thereby making taxation fairer for all parties. A delivery tax could be part of this and also help the green agenda.
Reform the Appeals System, providing more support to the VOA. CCA the business rates appeals system is a total car crash- an unwieldy system, ill-equipped to deal with the number of appeals that have flooded the system, particularly since the Covid-19 pandemic. Colliers believe there are nearly half a million Checks put into the system since last year. The VOA will be attempting to deal with these appeals at the same time as carrying out the next Rating Revaluation, leading to even further delays and frustrations for businesses, many of whom will need to turn to litigation, snarling up the system even further. The VOA needs to be properly resourced to deal with this MCC and the move to more frequent valuations.
Commit to a 2023 Rating Revaluation, even if the VOA has to complete this in one year (as committed to in Scotland). The VOA should be properly resourced to carry out such a revaluation. Leaving the next revaluation to 2024 would be disastrous and essentially mean another seven-year list, with businesses paying rate bills based on rental levels of 2015 for another three years. This should be avoided at all cost.
Brings in a business rates arrears moratorium for those businesses, who because of the pandemic have been unable to pay their business rates bills. Colliers suggest this should be for at least six months allowing businesses a chance to sort out their finances. Many hard-pressed businesses have received enforcement orders from their billing authorities for failure to pay their rates bills. Colliers urges the Government to instruct Local Billing Authorities to show flexibility and support to business rather than stepping up the heavy-handed court summons.
Take a proper look at Local Authority financing. Last week the Local Government Association warned ministers that a planned shake-up of the business rates system must “recognise the importance of this income stream for funding local key services” and urged ministers to look into new funding sources for councils as confidence in the current system dwindles.
John Webber, Head of Business Rates at Colliers said, “ The Government has a real opportunity on Tuesday to take the bull by the horns and introduce some key reforms to the business rates system – a system which in its current form is not working.
We do not believe in total abolition. Business rates provide an easy and manageable way to collect tax and, as a physical and property-based tax, one that is difficult to evade. More countries are introducing a property-based tax similar to the business rates system that we have in the UK than are doing away with it.
But over the past 30 years various governments have over-complicated the system, making it more opaque and increasing the level of this tax disproportionately. As a result, there has been a growing chorus of criticism.
So, while there is a place for a well-managed and transparent business rates system in this country- let’s hope the Government listens to reason and comes to its conclusions and offer solutions quickly. In this period of pandemic, businesses are making their decisions now about whether they stay open or close. Increasing costs, of which business rates play a big part will be a significant factor in the decision making. We call for a drastic cut in the multiplier and subsequent business rate bills, more regular revaluations, support for the VOA and an overhaul of the appeals system, as well as a quick solution to the MCC debacle. And we urge that this is done sooner than later. Leaving discussions until the Autumn could just be too late – and the government may find the golden goose of business rates really has been well and truly cooked.”
