What could a change in business rates mean for your retail business?

Business rates have long been due an overhaul. What effect could changes have on your business?

09th July 2014

Tax increase for retailersIntegrity Trader supplies retail and point-of-sale software to businesses across the UK and Ireland. Many of our clients feel that SMEs are being unfairly penalised by the government despite supposed efforts to support them, and all due to one factor: business rates. Business rates are an ever-present blot on the accounting books of every business in the UK. Today’s system has emerged after hundreds of years of development and refinement, although the current business rates system is far from perfect - it is based on outdated rateable values still pegged to 2008 rent levels. High street retailers are paying inflated business rates due to the lack of revaluation, while supermarket rateable values are also likely to have risen during this time. The government recently announced that the 2015 business rates revaluation would be postponed until 2017, meaning that smaller high street retail stores will continue to pay over the odds. While the precise effects of a revaluation remain unclear, some industry groups including the British Retail Consortium have called for a more significant overhaul of the system.

The government’s position

The government claimed that the 2015 business rates revaluation would have led to more losers than winners. The revaluation itself would have cost £43 million, according to MP Brandon Lewis. Lewis claims that the multiplier that is used to calculate business rates would have risen automatically in response to lower rateable values, to ensure no significant change to tax revenues. This change would have meant that 800,000 premises would lose out and only 300,000 would gain.  The retail sector would have faced an overall tax rise of 1% above inflation, with food retailers including supermarkets facing the largest increases. London retailers would have faced the biggest business rates rise. The revaluation has been postponed until 2017, although this year’s Budget revealed a cap of business rate increases for small businesses, alongside a £1,000 discount.

Possible changes

Although a revaluation may well help smaller high street businesses outside of London, an entire overhaul of business rates is likely to be more popular with retailers – although it is unlikely that the government will find the funds to initiate a complete overhaul at any point in the near future.

Changes suggested by the BRC include:

  • Basing rates on energy use, encouraging retailers to reduce their carbon emissions. This change would indirectly benefit retailers in small premises (particularly those on the high street), due simply to building and street layouts.
  • Implement discounts based on the number of employees, capped at a percentage of business rates. This would encourage employment.
  • Create a link between corporation tax and business rates. They are both taxes on business – why can’t they be combined or at least connected?
  • Add regional considerations into the system in order to reflect the fact that the property market is not homogenous. This would introduce another variable into the business rates calculation.

The impact on your business

Clearly none of the above measures are ideal, but at present it’s clear that the system penalises high street businesses in areas that are still struggling to recover from the recession. With no change to business rates in the works for at least another three years (except for Labour planning a change to how the money is spent), businesses will simply have to find alternative ways of saving money through difficult periods. Accounting software is one of many tools at your disposal to ensure that your business is reducing costs and making no unnecessary purchases. Find out more about the ways that Trader software can save you money, or give us a call to arrange a demo.
 

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