The current business rates system is over-complex and reform is needed, but reforms should focus first of all on simplifying the appeals process, particularly for businesses which are subject to business rates exemption
POST 23 June amidst all of the dramatic upheaval and uncertainty of the past few weeks, it is easy to overlook the fact that we have a new chancellor of the Exchequer facing many of the same challenges as before. Perhaps of greatest interest that Philip Hammond, the new man at HM Treasury, is widely regarded as possessing an accountant’s precision and eye for detail: a safe pair of hands for troubled times. Many readers of this column will, I’m sure, applaud such a step. So beyond the headlines, what should our new chancellor turn his detailed eye to first?
I really think that business rates is a big problem for small businesses and the overall tax structure needs to be reformed and the burden reduced for SMEs. Therefore in order to raise the profile of the whole issue and area I wanted to share with you the comments that ACCA made relation to the consultation which closed this month on more frequent valuations.
ACCA urges the government to reconsider whether delivering more frequent revaluations of business rates by moving the onus for the revaluations onto the taxpayers would be of benefit to the government and taxpayers in the current uncertain economic climate.
The current business rates system is over-complex and reform is needed, but reforms should focus first of all on simplifying the appeals process, particularly for businesses which are subject to business rates exemptions. Currently, small and medium businesses spend significant amounts of time and expense in appealing against revaluations, even where the small business exemption reduces the business rates payable to nil. Businesses subject to the small business exemption appeal against revaluations because they are concerned that the small business exemption may be removed or thresholds redefined in future, causing business rates to crystallise based on the higher revaluations. This concern could be addressed by legislation clarifying that businesses subject to business rates exemptions will have the right to appeal against existing revaluations as and when the exemptions no longer apply.
ACCA advocates retaining the current system of five-yearly revaluations carried out by the Valuation Office Agency (VOA) – along with the two-year advance notice period before new revaluations come into effect. As a safeguard, a growth trigger for earlier revaluations, or the option for businesses to challenge revaluations by exception, with self-assessments, could be considered. This would provide a safety net for both businesses and local authorities and account for increased or reduced growth.
Local governments will retain 100% of their business rates from 2020, against a significant reduction in funding from central government. To put this into context: at the start of the 2010 Parliament, almost 80% of council expenditure was financed by central government grant; by next year, Revenue Support Grant is expected to account for only 16% of local government spending. Beyond 2020, the Revenue Support Grant will be scrapped altogether, being replaced largely with income from business rates. Local governments are required to deliver essential services while maintaining a balanced budget – the increasing pressures on the delivery of social services and waste management, in particular, means that protecting the stability of business rates income will be paramount.
Part of this means preserving the current longer cycle of revaluations and resisting the urge to make taxpayers self-assess their rateable values: late or incorrect self-assessments, coupled with the increased volatility of a shorter revaluation cycle, will have a negative impact on local authorities’ ability to plan for future cash flow. At the same time, given that business rates will account for a large proportion of local government income, local governments should have some way to influence business rates We understand that the business rates multiplier is expected to continue to be determined at central government level. Given the devolution, we believe that local governments should be able to influence the multiplier, through for example requesting lower multipliers for specific regeneration/ enterprise zones.
As we all know, SMEs are integral to the UK economy, accounting for 99% of the total number of businesses and employing over 15 million people. I hope that Philip Hammond takes notice of this festering problem around business rates for SMEs and really takes the bull by the horns by reforming effectively and reducing costs for small enterprise. With so much talk in the political atmosphere at present expressing a desire to ‘Take Back Control’ this would seem to be a prime place to start.