Business still faces rate rises

Big businesses will still face large rate rises, and the transitional rate relief caps to give them time to adjust to higher bills are still set too high, according to tax specialists.

Chancellor Philip Hammond announced today that the transitionary rate relief finalised by the government would see some changes to a version consulted on earlier this year, which was described as exposing larger properties to “massive pain”.

Businesses in buildings worth more than £100,000 will see some small changes in the amount they could see their bills rise before the cap kicks in and cushions the blow.

Quite amazed to see some industry leaders praising Chancellor for a miniscule reduction in next year's still enormous #businessrates leaps

— Jerry Schurder (@JerrySchurder) November 23, 2016

Tax experts said the move was still bad news but lower than expected.

September 2016: Large properties ‘exposed to massive pain’ by new business rates

Hammond said: “I can confirm today that having consulted further, my right honourable friend, the communities secretary, will lower the transitional relief cap from 45% next year to 43%, and from 50% to 32% the year after.”

Ian Allison, director in business rates at BNP Paribas Real Estate, said: “The relief is indeed complicated but the chancellor presented this bad news very well, by implying that the level of rates increases that many businesses are set to endure next year will be lower than expected.”

Peter Chapman, Cluttons head of rating and compensation, said it was of great concern that there had been no rates relief rethink, “particularly following the huge number of responses from organisations such as the CBI and businesses in London, some of whom will see their business rates increase by more than 60% from next April when taking into account the Crossrail supplement”.

Cluttons had called for a cap of 12.5% in rates rises for large businesses, far below the 43% they will see.

Keith Cooney, national head of business rates at Knight Frank, said the Government was risking a spate of corporate insolvencies because of its failure to significantly reduce the business rate increases over the next two years.

He said: “The Government’s moves to support SMEs are welcome, but the commitment to keep business rates policy changes fiscally neutral is shifting the balance too far the other way, with 11% of businesses contributing 72% of the £29 billion generated for the Treasury every year.”

David Parker, head of rating at Savills, said the final rate relief allowances did not help businesses which had been waiting for years for a rate reduction, only to see a cap on the speed which their bills could drop each year.

He said: “Clearly the only way that the transitional phasing system could have been more balanced would have been for it not to have been self-funding.

“Perhaps the introduction of an additional supplement to all businesses would have accelerated the recovery in the market in struggling areas, and offered some respite for businesses which are faced with substantial rates increases with less than six months notice.”

David Jones, senior director in GVA’s London business rates team, said: “Government has merely tinkered with their initial proposals and continue to apply a very aggressive transitional relief scheme to phase in liability increases from next April’s revaluation.”

He added: “The new 2017 list proposals are directly targeted at ‘larger businesses’, who by some considerable margin pay the majority of business rates. We consider the new scheme to be anti-competitive, particularly where the RV is just above £100,000.”

But Melanie Leech, chief executive of the British Property Federation, welcomed the tinkering, saying: “We were pleased to see that the business rate rises that businesses will face because of the recent revaluation being phased in at a slightly slower pace.

“Taxes should not be the ruination of businesses and this will help.”

Pain for the City?

The City and financial services will be hard-hit by the business rates, according to Carter Jonas.

Head of tenant advisory team, Michael Pain, said: “Business rates are likely to rise significantly above 35% in the City from 1 April next year which represents a very substantial increase in the operating costs for City based businesses. “

Knight Frank and EGi data shows the impact of the business rates, and then the amount of sq ft due to expire in London by 2020 by sector – hinting at the potential for moves.