Small firms face rise in business rates with end of relief

Published 30th Mar 2010

Thousands of small businesses will see their rates bills double this week after falling through a loophole in the business rates system.



The worst affected are those leaving the small business rates relief scheme, which cuts bills by up to half for those in high street shops, workshops and offices that are valued at less than £12,000.

Many of the 400,000 businesses on this scheme will become ineligible for relief overnight as new rateable values take effect on April 1.

These businesses have seen the rateable value of their premises rise from under the relief threshold to way above it after a revaluation that takes place every five years in England. Unlike bills increases faced by businesses in larger premises, their rates bill increases are not capped in the first year after leaving the relief scheme.

The revelation comes despite the Department for Communities and Local Government insisting the 40pc of businesses seeing an increase in rates bills from April will have rises capped. Barbara Follett, a minister in the department, told the Commons this month a transitional relief scheme would "ensure no business property sees its rates bill increase by more than 11pc as a result of the revaluation, with maximum increases capped at just 3.5pc for small properties".

A Department spokesman confirmed that businesses leaving the relief scheme could see higher rates bills tomorrow. "Transitional relief is designed to limit increases in bills that result from the revaluation, it does not offer protection from increases due to a change or loss of small business rate relief," he said.

Last week the Chancellor announced that businesses in premises with a rateable value of less than £6,000 will receive a year's holiday from paying any rates from October. Those with a value up to £12,000 receive a discount on bills.

Ratings experts have welcomed the move but point out it is the fifth major change to the rates system in two years.

These include the decision to scrap and then partially reinstate empty property relief and the last minute move in March 2009 to let small businesses defer up to two fifths of the annual increase in bills for two years. This followed the Chancellor's controversial decision to let business rates bills rise by an inflation-busting 5pc from last April.

Councils struggled to accommodate the deferral decision and it was September before many businesses could start reducing bills. Those deferred bills will have to be paid even during any rates holiday from October, providing a further administrative headache for councils.

Around 68pc of 575,000 small premises eligible to claim small firms rates relief do so, official research estimates. Ratings experts said the system was becoming so complicated companies were outsourcing payment of bills.

Jerry Schurder, head of rating at property firm Gerald Eve, said: "One of the largest growing areas of our business is a fully outsourced rates management business. We physically take responsibility for paying rates for them. Businesses are saying we can't work it out ourselves. It's just too complex and badly handled by local authorities."

He added that while the holiday was a positive move the relief should be longer than one year. "This is just making it more and more complicated. We start paying it then we stop. The rates system has been hijacked too often for purposes other than for which it was designed."

For example, if the holiday for small businesses does go ahead councils would not send out bills to those that are eligible. However, they will have to send out bills to those that have taken up the Chancellor's offer to defer payment. These sums are likely to be small and the administrative cost as a proportion of the total tax collected will be significant, Mr Schurder said.

How business rates relief works

Property in England with a rateable value below £12,000 is eligible for a small business rate relief reduction of up to 50pc on its rates bill from April 1. Ratepayers should register with their local council. Once their application is accepted the relief is applied automatically by the council for three years.

An alternative scheme operates in Wales and Scotland and support also exists in Northern Ireland.

Rural businesses may be able to claim rural rate relief. Village shops qualify if they have a rateable value below £8,500, while sole village pubs or petrol filling stations can apply if they have rateable values of up to £12,500. The businesses must be in a settlement of fewer than 3,000 people.

Empty property with a rateable value below £18,000 is exempt from business rates.

Source: ' Telegraph '

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