On 1 April finance directors may be advised to sit down when looking at their companies' rates bills - they will include the first business rates rises for five years, which may be very steep.
Business Rates Charges are now the second biggest occupancy cost per square foot that businesses face (after rent) and it is an ever-growing issue, which will add noticeably to their overall fixed costs.
The Year 2000 Rating Revaluation, which will be based on 1 April 1998 figures, is generating significant concern within the business community about spiralling property costs – certain sectors face very large increases from 1 April 2000 because of rising Rateable Values (notably companies in prime development locations and just about anyone in the South-East) and hence the level of Business Rates Charges payable.
One of the main problems is that the 1995 revaluation, (which was based on April 1993 figures), took place in a relatively depressed property market, which will exacerbate the hikes in rateable values unveiled by the Valuation Office Agency (part of the Inland Revenue) next month.
And the fact that there is transitional phasing of increases is a mixed blessing – the good news is that the increases in bills will be capped at 12.5%: the bad news is this was only announced by the government in late November, leaving companies little time to calculate and prepare for the likely increases.
The total tax yield from Business Rates for 1999/2000 will be approximately £14bn. It is essential that companies maximise their claims to the appropriate reliefs and allowances, which can change as their businesses do.
Property acquisitions, disposals, capital expenditure and surplus capacity will all affect the charges companies must pay to local authorities.
One sector which may be hard hit are football clubs – their rateable values are based on the information held in their accounts. With the amount of extra TV revenue and the redevelopment of grounds since 1995, they seem set for a large hike in their rates. But they, and all companies, must address business rates like any other tax – it is a cost to be managed and mitigated.
David O’Keeffe is head of Capital Allowance Consulting at KPMG.