Impact of business rates on business

The Government has announced the postponement of the 2021 business rates revaluation.

The stated aim is to reduce the uncertainty firms face as they deal with the impacts of the coronavirus pandemic.

However, postponement of the revaluation raises a new set of questions, and may actually add to uncertainty in the longer term.

What are the Implications of the Revaluation Postponement?

For ratepayers, the postponement means that they will continue to pay business rates based on current rateable values.

These values will continue to be based on hypothetical rental values as at April 2015, until there is another business rates revaluation.

However, the continuing coronavirus crisis raises serious questions about the appropriateness of applying these figures in the current economic climate.

The Government have put measures in place during this rates year to ease the burden of business rates on businesses they have decided are most affected by the current crisis.

There have been various announcements and guidelines published that provide details of a business rates holiday for the 2020-2021 tax year.

This applied to eligible businesses in the retail, leisure, hospitality and nursery sectors.

Other businesses in certain sectors can claim cash grants.

But recovery looks set to be slow, and uncertain. The question then will be how open-ended can these current arrangements afford to be?

Why Postponement Can Cause Uncertainty

The Government has stated that it remains committed to more frequent revaluations to ensure that businesses’ rates bills more accurately reflect up-to-date property rental values.

However, there is an in-built problem in the current system where the business rates revaluation is based on rental value figures collected two years prior to it.

In 2010, for example, the rating list was based on rental data from before the financial crash, when rental prices would have been higher.

There is a sense that, under the current system, the revaluation is always playing catch-up, and businesses have to bear the cost.

If the 2021 revaluation takes place in 2022, what will the Valuation Office Agency base its new rateable values on?

The antecedent valuation date for non-domestic properties was originally planned to be 1 April 2019, which is effectively the date properties would be valued at for the next revaluation.

But if that has been postponed until at least 2022, how relevant, or fair, will these 2019 rental income values be?

Alternatively, would the Government then base a 2022 business rates revaluation on 2020 rental values?

Given the current circumstances, this would be a difficult exercise to complete, and would provide results which could be just as problematic as 2019 values would be.

On the one hand, postponement of the business rates revaluation is welcome because it removes one more area of complexity for businesses to deal with.

On the other, it simply puts off tackling the thorny issue of business rates in the long-term.

Uncertainty or Opportunity?

No one knows how the current crisis will end, or when. Even as lockdown eases, there is the prospect of a deep recession to contend with.

Is the current business rates system the right mechanism to help businesses, and communities, cope with what lies ahead?

The Government is continuing its work on a fundamental review of business rates, and the House of Treasury Select Committee has issued a report concluding that the current system is broken.

For a great many businesses, they face an extended period of change, and extremely challenging economic conditions. Does the impact of Covid-19 offer an opportunity for the Government to re-shape the business rates system to ease the long-term burden on businesses?

Postponement is not the answer. Fundamental change is.

For more information about business rates and how they affect your business, please contact our team.

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