‘Fundamental’ overhaul of business rates in view

The government has announced a call for evidence for the fundamental review of the business rates system, seeking views on issues to be addressed, ideas for change and alternatives which could include an online sales tax

At this stage in the review, which was promised in the Spring Budget, the government is not consulting on the specific design of policies, but is looking at ways to reduce the overall burden on businesses, improve the current business rates system, and consider more fundamental changes in the medium-to-long-term.

The call for evidence says that due to the prevalence of concerns about online retail trends, an online sales tax would be an option under consideration, although it would be unlikely to raise revenue sufficient to replace business rates. Thus any such tax would exist alongside business rates, but ‘could still provide a sustainable and meaningful revenue source’.

While the scope of an online sales tax would need further consideration, it could be levied on the revenues that businesses generate from online sales to UK customers, and focused on sales in direct competition with those carried out through physical premises.

The government says it is aware of concerns about the complexity of rates reliefs, and is seeking evidence on whether and how reliefs can be simplified.

The review highlights evidence showing business rates cuts are ‘capitalised’ into higher rents over time and so benefit landlords over ratepayers. It flags concerns that certain reliefs are poorly targeted, citing how eligibility for small business rates relief shows significant regional variation with the result that in some areas businesses with a high turnover or high number of employees qualify even though they are not counted as a small business by other measures.

The government says it wants to look at how reliefs can be targeted more effectively to ensure value for public money, made robust against abuse, or how the design and administration of business rates reliefs can be otherwise improved.

In addition, it is seeking views on how the ‘multipliers’ used to determine business rates bills are set. Many ratepayers have raised concerns about the level of the business rates multiplier, the rate at which the multiplier has increased since 1990, and the rate at which it may change in future.

One option would be to introduce additional multipliers that vary by geography, property value, or property type.

The government is seeking views on alternative methods of setting the multiplier each year, and at revaluations, when the value of the tax base is updated.

On the issue of revaluations of property, the review asks for views on frequency of revaluations and the possible introduction of a banded or zone-based valuations system.

It also considers changes to the plant and machinery regulations, and alternations to the process for challenging valuations.

The government has made clear in the call for evidence document that decisions on reforming the business rates system will need to take into account the impact of the Covid-19 crisis on the high street.

It has also confirmed that the next revaluation of non-domestic property in England, previously scheduled for 1 April 2021, will now take effect on 1 April 2023.

The government says it welcomes views on the multiplier and reliefs sections, by 18 September, to inform an interim report in the autumn. Responses on all other sections are invited by 31 October, ahead of the review’s conclusion in spring 2021.

Kate Nicholls, chief executive of trade body UK Hospitality welcomed call for evidence on business rates reform, saying: ‘We identified it as the largest barrier to growth in our sector years ago. We have pushed extremely hard to convince the government to act on this, so it is great to finally see positive action.

‘Kicking back the revaluation by a further year will give businesses some much-needed breathing room and stability.

‘Pushing back should also provide time for reforms to be introduced and a more accurate reflection of property values following this crisis which has clearly had an enormous impact on trade.’

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