ICAEW.com works better with JavaScript enabled.

It’s time to shake up business rates

20 January 2020: business rates have been a millstone for bricks and mortar businesses for decades. It’s time to rethink a broken system

Nobody likes business rates: a tax that takes no account of profitability, yet has increased above inflation for 30 years. The UK now levies some of the highest business property taxes in the developed world – and retailers with bricks and mortar stores, already under severe pressure from online competitors, pay 25% of them.

John Boulton, Technical Strategy Manager at ICAEW, believes that the current business rates system discourages new business activity, in part because the rationale for revaluations appears so opaque, making it difficult for businesses to plan ahead.

At the end of October 2019, the House of Commons Treasury Committee published a damning report on the impact of business rates, urging the government to review the system and consult on possible reforms. The Conservative Party’s manifesto for the 2019 General Election promised “a fundamental review” and an extension of business rate reliefs to a wider range of businesses.

“Reliefs are welcome, but they’re just sticking plasters – symptoms of a system that’s not working,” says Boulton. The reliefs system and appeals processes are also complex, and operate in different ways in each of the four nations in the UK.

The Treasury Committee report considered pros and cons of other taxes that could replace or complement a reformed business rates system, including a land tax, an online sales levy, or a hybrid approach combining property and profit taxes. But Committee members concluded that none of them would improve the current situation.

Martin Davenport, Partner, Head of the Rating Team at commercial property consultancy Hartnell Taylor Cook and a former president of the Rating Surveyors Association (RSA), thinks changes to the current system would have some positive effects.

“The current retail discount – a third off for shops, restaurants and pubs with rateable values of less than £51,000 – doesn’t go far enough,” he says. “I think the percentage of relief it provides should be doubled, from 33% to 66%, and the threshold for businesses that can apply for it increased to £100,000.”

Davenport expects the government to at least consider introducing some sort of self-assessment system, versions of which are used elsewhere, including in the Netherlands. However, he suspects no government would voluntarily introduce a change that reduced significantly the £31bn business rates delivered to the Exchequer in 2018/2019.

Boulton agrees. “But even if we just look at making the system more simple and transparent, that would be a step beyond any reform we’ve had in recent years,” he says. “We look forward to contributing to an in-depth review of business rates.”