What will business rate devolution mean for your business?

Business rates raise over £25 billion for central and local governments every year – a similar amount to council tax receipts.

25th December 2015

business rateNaturally, business rates are a significant cost for most businesses, not least builders’ merchants and other high street traders. The retail community has long been hoping for a reform, or at least a revaluation of business rates, as many claim the current system puts small, independent retailers at a disadvantage. Plenty of alternative systems have been proposed by businesses, but a government review into business rates has been delayed for several years now. In this year’s Autumn Statement, the chancellor did confirm two changes to the business rates system: all money generated from the tax would stay with local authorities – and they’ll gain some degree of control over rates. Read on to learn more about the effects that devolved business rates might have on your company.

The details

By the end of the parliament, councils will retain 100% of the business rates companies in their area generate. The universal business rate, which currently applies across the country, will be abolished. Instead, councils will have the power to cut business rates to encourage business growth in the area. The premise is to set up a form of competition between local authorities to attract business. Notably, councils will not be allowed to raise business rates beyond their normal levels – except for in very specific circumstances.

Areas with elected mayors will have the power to increase business rates to fund local infrastructure projects – but only if local business supports the levy. The mayor is then accountable for tax hikes, and businesses can discuss the worth of proposed local infrastructure through their Local Enterprise Partnership.

Mechanisms that top up rates revenue for councils in poorer or sparsely populated areas will remain.  

How will devolved business rates affect businesses?

It’s unclear how many local authorities will take advantage of the new powers offered to them and risk lowering business rates. With council budgets under more pressure than ever, reducing a main revenue stream may seem foolish. Additionally, business rates are far from the only factor that affects an area’s attractiveness to businesses – available talent, renown, the cost of living, transport links and consumer demand all contribute. Therefore, if you operate in a city where business is already booming, councils will have less of an incentive to cut business rates.

Additionally, switching locations would be a huge expense for existing businesses, particularly those that rely on repeat trade for most of their revenue. If a neighbouring local authority started offering a huge discount on business rates, you might consider the move – but the costs of losing a significant chunk of your customer base (and your local reputation) might offset any benefits.

For new businesses, or new branches of existing businesses, lower business rates in certain areas will be more of a draw. For example, you might base a decision on where to open your second branch at least partially on the business rates in the respective areas. However, given that councils may be able to change rates at any time, making decisions based on current business rates is risky.

Finally, the government has stated that it will publish the results of a wider business rates review during next year’s budget. It is likely that this review will contain recommendations that will entirely overhaul how business rates are calculated. Although such changes may take years to implement, they are still worth bearing in mind when making decisions that will affect your business in the long term.

Any changes to business rates, whether devolution, revaluation or a fundamental transformation, will cause uncertainty in your business. Keep a close eye on your finances and maximise sales opportunities by utilising all the features that your retail management software has to offer.

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