Business Rates

Business Rates

Local government is financed by a combination of centrally-administered funding and locally-administered charges and taxes.

Business rates are paid by occupiers and owners of commercial and industrial property to the local authority, but at a rate set by central Government. The Government sets the rate in order to prevent wide disparities in charges stemming from widely differing rate bases between local authorities.

Local authorities collect the Business Rates for their area and hand the money to central Government, which is then redistributed to councils in line with a population-based formula

Background

Business rates were introduced in 1990, along with the community charge or 'poll tax' (now Council Tax) as a replacement for the old system of domestic and non-domestic rates.

The Valuation Office Agency (VOA), an executive agency of HM Revenue & Customs, assesses the rateable value of business and non-domestic properties based on the annual rental value of a property on a specific date.

The multiplier - also known as the Uniform Business Rate (UBR) - is then used by the local authority to calculate what percentage of the rateable value of a property has to be paid as business rates.

The multiplier is set annually by the Government. For 2011/12 the multiplier in England is 43.3p. For all businesses in Wales the multiplier is 42.8p. Therefore, as an example, if the rateable value of a property in England was £26,000, this would be £26,000 x 0.433 = £11,258 less any reliefs that are applicable. In Wales this would be £26,000 x 0.428 = £11,128 less any reliefs that are applicable.

A small business rate relief scheme has been in operation in England since April 2005. The small business multiplier for 2011/12 is 42.6p.

There are other reductions available, for example if the premises are empty.

Controversies

The shift to the Uniform Business Rate in 1990 was deeply unpopular with businesses, as rental values had increased dramatically since the last full-scale non-domestic valuation in 1973.

Local authorities have also been keen to see control over Business Rates returned to them. Councils often accuse the Government of underfunding them through central grants that impose additional duties that they must fulfil.

However, Sir Michael Lyons, in his 2007 inquiry into the role, function and funding of local government, advised against returning the Business Rate to the control of local authorities. But he did recommend that empty property relief be reformed and the Chancellor announced that legislation would be taken forward to reform relief from April 2008.

The Federation of Small Businesses expressed concern that small firms with empty properties could have to pay "thousands extra" in business rates because of changes to exemption rates which came into force from 1 April 2011. The FSB was concerned that government plans to cut the empty property rate relief threshold from £18,000, to just £2,600 would "place a very significant burden on many small firms that are struggling in the current economic climate."

Statistics

Small business rate relief in England:

If the 2010 rateable value is £6,000 or below, the small business rate multiplier is used and the bill will be reduced by 50 per cent.
If the 2010 rateable value is between £6,001 and £11,999 inclusive, the small business rate multiplier is used and the bill will be reduced on a sliding scale - from 50 per cent at the bottom of the range to 0 per cent at the top. For example, if the rateable value is £9,000, the bill will be reduced by 25 per cent.
If the 2010 rateable value is between £12,000 and £17,999 (£25,499 in London), the small business rate multiplier is used only.

Source: Business Link – 2011

The Budget announced that between 1 October 2010 and 30 September 2011, eligible ratepayers will receive small business rate relief at one hundred per cent on properties up to £6,000 (rather than fifty per cent), and a tapering relief from one hundred per cent to zero per cent for properties up to £12,000 in rateable value for that period.
Legislation will be introduced through the Localism Bill to remove the legal requirement for eligible ratepayers to submit an application form. Councils will be free to administer Small Business Rate Relief in a way that best serves local businesses and local needs.
Secondary legislation will also be amended to ensure that all eligible ratepayers below the £18,000 (£25,500 in London) rateable value threshold have their bills calculated using the small business multiplier, regardless of the number of properties that they occupy. The legislation applies to England only.

Source: Department for Communities and Local Government

Rating multipliers for England
In England since 1 April 2005 a small business rate relief scheme has been in operation
2008/9 Standard multiplier - 46.2p Small business multiplier - 45.8p
2009/10 Standard multiplier - 48.5p Small business multiplier - 48.1p
2010/11 Standard multiplier - 41.4p Small business multiplier - 40.7p
2011/12 Standard multiplier – 43.3p Small business multiplier – 42.6p

For England a small business is one where the total rateable value is under £18,000 (under £25,500 in London.)

Source: VOA – 2011

Quotes

"Retailers and customers need action on Business Rates……. Under current convention, April's Business Rates increase is determined by the previous September's Retail Price Index (RPI) inflation figure. That would mean a massive 5.6 per cent Business Rates increase next April on top of a 4.6 per cent increase this year…{The Chancellor} should implement a significantly lower Business Rates increase".

British Retail Consortium Director General Stephen Robertson, writing for The Independent – November 2011