New business rates regulations were announced in the Chancellors March 2016 budget. Dobbin and Sullivan will review the current position on business rates in this update and the changes coming into action in the future.
How are the rates calculated?
The business rates are calculated using the rateable value and a multiplier. The rateable value is re-calculated every five years by the Valuation Office Agency and normally reflects an open market rent achievable for the property. Whilst a revaluation is usually every five years, given the latest revaluation was in 2010 the most recent valuation should have been 2015, however this has been delayed to 2017 due to the ‘Growth and Infrastructure Act 2013’. The five year cycle will then continue from 2017 followed by 2022 and so on. The multiplier is expressed as pence per pound which is then multiplied by the allocated rateable value for a particular property and this produces the figure for the business rates payable. This multiplier is then increased each year by a maximum inflation rate of the Retail Price Index from the previous September, however from the 2020-21 financial year the business rates uplift will be linked to the lower Consumer Price Index rather than Retail Price Index.
Looking back just over a decade ago the Small Business Rates Relief was introduced with effect from 1st April 2005. This has led to reduced payments for properties below a certain rateable value but due to the pressure of economic circumstances in recent years there have been calls for change. With the new regulations in place from April 2017 the government estimates that approximately 600,000 businesses will benefit from the 100% exemption from business rates – a significant increase. The 100% exemption currently applies to any properties with a rateable value of £6,000 and below for the 2016/2017 year. Up to 31st March 2017 there will be a tapered relief system in place for properties with a rateable value between £6,001 and £12,000. This 100% exemption will be extended permanently for rateable values up to £12,000 from April 2017. For Rateable Values between £12-15,000 there will be a tapered relief system in place to avoid a dramatic jump. The tapering works on a basis of 1% per £60 of the rateable value.
In the current year the small business rates multiplier has been set at 48.4p (1st April 2016 – 31st March 2017) while the standard multiplier is 49.7p. In the City of London the multipliers are 48.9p for small businesses and 50.2p for the standard rate. On properties with a Rateable Value below £18,000 or £25,500 in greater London the small business rates multiplier applies even if multiple properties are owned in the 2016-2017 year. From April 2017 the standard rate threshold will rise to £51,000 for small businesses.
Who else qualifies for business rates relief?
Along with the standard exemptions above there are some additional users that benefit from rates relief.
Charitable organisations are entitled to an 80% exemption in the business rates chargeable along with community amateur sports clubs. This relief can be extended to 100% at the discretion of the billing authority.
Empty commercial properties in the retail, office and leisure industry are exempt from business rates for 3 months from the date of the property becoming empty, whereas this increases to 6 months for industrial and storage premises. Beyond this the landlord is responsible for paying 100% of the rates payable. If the rateable value is below £2,500 then this will be exempt as will a property held by a charity or company in administration. In the case where the property is occupied for a short period of time followed by another vacant period, in order for the 3/6 month period to be restarted the property must have been in occupation for at least a 6 week period and if this is not the case then only the remainder of the 3/6 month period applies. Where a commercial premises is newly built the exemption from rates applies for the first 18 months once completed up until 30th September 2016. For developments completed after this date the normal 3 or 6 months empty rates exemptions will apply.
Are the new changes enough? Many companies would welcome more frequent revaluations rather than the current five yearly review pattern in order to enable a more accurate rating assessment to be calculated in line with the economic climate.
However, there are a number of positive changes made through the increased exemptions and higher small business rates threshold that are both in effect as well as coming into place in the next financial year. At a time of increased economic uncertainty due to ‘Brexit’ likely to be lingering around in the UK for the foreseeable future this is some comfort particularly for small business operators.