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Have business rates served their time?

4 November: Alongside outlining how business rates could be modernised, ICAEW has suggested that a “fundamental rethink” of property and business tax is needed for a long-term solution.

Technology and more transparency could help to address some of the unfairness within the business rates system in the medium term, ICAEW has suggested in its response to HMRC’s second call for evidence in its review of business rates.

However, ICAEW also argues that in the long term that business rates may have “served their time” and that a comprehensive review of property and business taxes may offer a better solution.

Following on from its response to HMRC’s first call for evidence, in which ICAEW called for urgent action to reduce the multiplier, ICAEW Rep 98/20 outlines three areas that it believes are crucial to making rates “less problematic” for business in the medium term.

The first is the need for a clearer link with current market values. ICAEW’s Tax Faculty argues that many of the problems business face with rates are linked to the lack of certainty around how much they need to pay. It concludes that these issues might be addressed by a clearer link between market rents and business rates and suggests that technology could help provide this.

Secondly, ICAEW argues that there is need for more timely data. While acknowledging the government’s commitment to complete revaluations every three years, the faculty argues that the roll-out of digital tax systems should make it possible to enable more timely maintenance of valuations.

Finally, ICAEW concludes that more information about the calculation of rateable values could make the system fairer. ICAEW suggests that the government investigates whether the Valuation Office Agency could share more details about assessments, including how a valuation was calculated.

The representation concludes by looking towards the future. It argues that while business rates aim to be a property tax, a business tax and a source of revenue for local government, they do not perform any of these tasks particularly well.

It states: “As a property tax they are poor at reflecting current property values and are difficult for businesses to estimate or change if they are wrong. As a business tax, they do not reflect business activity or the current capacity to pay. As a source of revenue for local government, they do not necessarily incentivise decisions consistent with local or national policy objectives.”

The UK’s reliance on property taxes is the highest in the OECD, with business rates generating £30bn for the Exchequer in 2018/19. But, as highlighted in ICAEW’s 2018 report, Business rates: maintain, demolish, rebuild or refurbish?, there are longstanding issues with the system that need to be addressed.

The business rates holiday introduced to support organisations through the coronavirus pandemic is estimated to result in foregone revenues of £10bn.

Frank Haskew, Head of the Tax Faculty, said: “In recovering those revenues, government will need to look beyond property. Now is the time for a fundamental rethink of local government finance and how businesses should be taxed overall.”

More information on business rates: