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ICAEW calls for decisive action on business rates

15 September: While the government’s business rates consultation is positive news, it must listen carefully and act swiftly to minimise business failures once reliefs end next year, according to ICAEW.

 The call follows the launch of HM Treasury’s call for evidence for its fundamental review of business rates, the first deadline for which is 18 September. 

“It’s positive that Government is consulting now,” says John Boulton, Director of Technical Policy at ICAEW. “That gives an opportunity to consider what short-term action government needs to take. But we’ve got to recognise that there is going to be a crisis in certain sectors in April when the rates kick back in.”

The business rates system has long been controversial. The property tax is now the third-largest tax paid by businesses - but the only one largely unrelated to trading conditions. In 2017, business rates accounted for almost a fifth (19%) of the taxes paid by FTSE 100 companies.

The House of Commons Treasury Select Committee published a report on the impact of business rates and debating the merits of possible alternatives towards the end of last year. This concluded that nothing would improve the situation at that point.

However, in today’s much-changed economic environment it may be a different story, and ICAEW hopes this will be a strong incentive for the Government to act decisively and consider the impact and fairness of business rates - and how they could be improved.

While £31bn of business rates was delivered to the Exchequer in 2018/19 in March of this year, it was announced that businesses in the retail, hospitality and leisure sectors in England would not have to pay business rates for the 2020 to 2021 tax year – a support measure worth £10bn. 

While the latest review considers short-term measures such as resetting the business rates multipliers used in their calculation, longer-term action must be considered to improve the effectiveness and administration of the existing system, as well as explore alternatives. 

Call for change

Boulton is continuing to lead the ICAEW’s call for change, first suggested in its 2019 evidence to the Treasury Committee. 

ICAEW had previously suggested that rates should be more closely linked with market rents (as rents fall in a downturn, so should rates); more frequent valuations, rather than the current three-year system which is already subject to delays; and greater transparency into the process, which would allow business owners to see more clearly how rates were set and make adjustments if required. 

“Business rates, unlike other taxes, don’t scale with economics or business success so in a downturn, as we are now experiencing, they are inflexible and problematic and potentially they are going to cause businesses to fail,” says Boulton. “One key problem, under current conditions is that the ‘multiplier’ just seems too high. With a significant shift of business online can a multiplier of 50.4p on every £1 of ‘rateable value’, still be justified?”

Boulton continued: “It’s an easy tax to collect and measure but it’s hard for people to challenge. It’s about making the system work better by making reforms that haven’t been done in decades, as well as and better using technology. Longer-term, he urges Government to look at a more flexible approach, such as annual property valuations, as well as offering greater transparency through an online portal rather than the labour and time-intensive manual system currently in place. “That’s a system that is then more responsive,” says Boulton. 

And if changes aren’t made, Boulton warns that the Government may not be able to continue to rely on revenues continuing at current levels from the tax. “The question is if they don’t make reforms to the system then are they going to be able to continue to generate these revenues, which are concentrated in certain sectors?” he asks. 

The deadline for evidence for views on short-term measures such as multipliers and reliefs is 18 September. This will inform an interim report to be published by HM Treasury in the autumn. 

The second deadline, which will deal with longer-term measures, is 31 October, ahead of the review’s conclusion in Spring next year. ICAEW members are encouraged to respond to the consultation and to share their views with ICAEW to help it in its suggestions to the Government.