Business rates review launched

Wednesday 18 March 2015

A review of the business rates system in England has been launched by the Treasury.

The review will look into such areas as how to better support small businesses, limited companies and people who are just setting up a business. There is also the possibility that the results of the review will result in a move away from business rates determined by property value.

Results are due in time for the Budget 2016 and are expected to show where there should be changes to the current business rates system, which has been in operation since 1988.

What is not expected to change is the amount of money that is collected from firms under the business rates system.

The review was announced for the first time during the Autumn Statement in December. It will study how businesses use property, what lessons the UK could take from other countries and how the system could be modernised so that it is more in line with changes in property values.

Criticism has often fallen on the current system, where rates are charged according to the value of the commercial property where the business is in operation. For this reason, companies that generate a similar turnover may pay considerably different amounts in business rates because of the different rateable values of their properties. These rateable values are dependent on the size and location of the buildings.

Business rates date back to the Poor Law, which was established during 1601. They are calculated using the rental value of a property used by a firm.

At present, valuations are based on property prices from 2008, which was before commercial property values were hit by the financial crisis. A revaluation was scheduled for last year but the government postponed it.

The business rates that English firms pay is the highest out of any country in the European Union and can be their biggest expense, besides wages and rent.

Business rates have often been considered the cause of declining high streets and a rising number of vacant shops.

The launch of the review was welcomed by the Association of Independent Professionals and the Self Employed (IPSE), which believes that shared work spaces should be considered a focus for the review. IPSE refers to these spaces as work-hubs.

Director of policy and external affairs at IPSE Simon McVicker said: "We welcome the review into business rates and hope that it will lead to a cut in rates for work-hubs that we have long been calling for. Work-hubs provide a valuable service to the UK’s 4.6 million self-employed who use them for desk space, networking and collaborative working."

IPSE has called for a reduction in business rates for work-hubs and has been discussing the issue with the Department for Business, Enterprise and Skills. It says that cutting rates for work-hubs will encourage them to grow, which will be useful for the UK's smallest businesses in turn.

At present, some small businesses with premises are exempt from paying rates. However, firms that use work-hubs are forced indirectly to pay rates as they are a big contributor to the operating cost of work-hubs.

By Victoria McDonnell

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