Business rates are set by local authorities each year based on the ‘rateable value’ of the property concerned As part of the reform of business rates, revaluations will be carried out every three years from 2023, instead of every five years.
Transitional arrangements smooth the change in business rates over the period between each valuation. On 30 May 2022, the government issued a consultation seeking views on the potential reform of these transitional arrangements.
When a revaluation takes place, it can in theory have a significant impact on the rates a business has to pay. Sometimes it can go up significantly. Other times, it can go down significantly, depending on the change in value of the property.
Under existing transitional arrangements, there is a cap on the percentage amount that rates can go up or down each year as a result of the revaluation. There are caps set separately for small, medium, and large properties, based on rateable value bands. Smaller properties tend to be given a more generous treatment than medium. The treatment for medium properties is more generous than large.
As far as possible, the transitional arrangements are intended to be revenue neutral. This means that the smoothed decreases go to pay for smoothed increases. Most of the arrangements’ cost burden is placed on larger properties with year-on-year reductions in rates for these properties capped at between 4 – 6%.
One proposal put forward in the consultation included spreading the whole of any increase arising as a result of the revaluation over three years. This would be a significant departure from existing transitional arrangements, under which a business may not experience the whole of the increase or decrease indicated by the revaluation.
ICAEW provided a short response to the consultation following a meeting to discuss the proposals (see ICAEW REP 61/22). It pointed out that any move away from setting specific percentage increases in rates could place inflationary pressures on the economy. Businesses generally view business rates as a revenue cost rather than a tax. They may therefore raise prices in response to increased rates.
ICAEW also suggested that the government may wish to reconsider its policy of keeping the transitional arrangement revenue neutral (as far as possible). Businesses that see their premises’ rateable values fall will be hoping for a reduction in their costs. Any such reduction may help to stimulate economic recovery if businesses find that they have more funds available to invest in expansion.
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