Business rates are the bane of most corporate occupiers but bring in £30bn for the Government each year.
After years of assurances, the Government has launched what it calls a “fundamental” review of the business rates system. There is a call for evidence and it is important for all those affected to have their say.
Whilst the Government has made no secret that it wishes to continue with some form of tax on non-domestic property, it has promised to look at the overall effect of property taxes on the business community and to search for better ways of implementing a commercial property tax.
Part of the review focuses on improvements to the current system, where things have never run smoothly from a ratepayer’s perspective. The next Rating List has been pushed back to 2023 and the unloved Check Challenge Appeal system is overloaded with Covid-19 appeals. The review has also undertaken to review the reliefs available to occupiers, which have generated litigation over the years but which are now well-understood by businesses.
If the Government is committed to finding a better way of taxing commercial property then it is incumbent upon commercial property owners and occupiers to have their say in the Government’s call for evidence. Comments regarding multipliers and reliefs should be submitted by 18 September, with other responses due by 31 October.
Of course, many business owners who rent their premises may ask “why should this concern me?”. The answer is that as a tenant you will pay almost half your rent to the Government by way of business rates. The Government is obviously wary of losing the revenue stream and may skirt around the edges of the review and limit reliefs to ratepayers.
The review also references to alternatives to business rates, none of which appear particularly attractive and could see certain occupiers paying more, such as a tax on capital values and/or an online sales tax.
And of course, pension funds invest heavily in commercial property and will be significantly affected by drops in value. Take, for example, changes to empty property relief. Nobody – landlord, tenant, investor, developer – wants to sit on empty property yet the Government insists on taxing it as if it were occupied. If reliefs are taken away which mitigate the burden of empty property taxation then this will have a multi-million pound effect on balance sheets.
The Government, in its review paper, makes it clear that business rates are “efficient to collect, with low risks from avoidance and evasion”. With large sections of the commercial property industry already struggling to combat the effects of online retail, home-working, Brexit and the pandemic it is hoped that the Government will be sensitive to the industry’s plight and will sidestep actions which will increase the burden further.
Author: Richard New, Partner, Real Estate Disputes, Mills & Reeve LLP