Business Rates to Increase

Business Rates Increases to Provide New Year Squeeze

From 1 April 2017 business rates across the country will increase for the first time in nearly ten years, after increases were postponed for two years.

What is happening?  Rates have historically been linked to property prices and rents, but increases were capped at 12.5%. This cap will be removed from 1 April, allowing business rates to be significantly increased year-on-year in order for them to “catch up” to property price and rental increases, which were suppressed by the previous cap.

Why is this an issue? Analysis by the Valuation Office suggests that total rateable values in England will increase by an average of 10.6%.  This sounds manageable on the face of it, but needs to be understood in context. The increase will only apply to businesses in areas where property prices have actually risen. Therefore, the areas that will be most affected will be London and the South East, where  there have been significant property and rent rises in recent years. In a worst case scenario, over a five year period, businesses with a ‘medium’ property rateable value could see rate increases of 250%.  For businesses with larger properties the  news is even worse. The worst case analysis suggests rates could increase by 350% in the next five years. Keith Cooney, national head of business rates at property services firm Knight Frank, agrees with this analysis, stating: “The government is risking a spate of corporate insolvencies by failing to significantly reduce business rate increases over the next two years. The table below sets out the new caps in place and shows how businesses with medium and larger properties will be hardest hit.

 

Rate Increase Limits
Year Small Property (Rateable Value “RV”

<£20,000 or <£28,000 (London))

 

Medium Property  RV £28,001 to £100,000

 

Large Property

RV < £100,000

2017-2018 5% 12.5% 42%
2018-2019 7.5% 17.5% 32%
2019-2020 10% 20% 50%
2020-2021 15% 25% 16%
2021-2022 15% 25% 5%

A perfect storm brewing? 

For many businesses, particularly those with multiple premises and with high numbers of staff (retail, care homes, leisure etc.) there is a perfect storm brewing. The pending business rate increases come  on top of wage increases under the National Living Wage scheme (increasing to £7.50 for over 25’s from April 2017), and extra costs for pension auto-enrolment, which have only recently been absorbed by larger employers. The economic outlook is uncertain. The impact of Brexit is not yet fully understood, and the weakening value of Sterling is expected to give way to price rises, What should business owners do? Business owners should ensure they know what impact business rates increases will have on their business, and make sure they are ready to meet rate increases, which may continue to rise for a number of years. This may require cost-cutting or lead to price increases. Whatever the outcome, taking immediate professional advice is strongly recommended.

How can Quantuma help?

If your business is in financial distress as a result of increased costs, don’t wait – it is always best to seek professional advice as early as possible. Quantuma is here to help. We have significant experience in this area, and will provide a free, no obligation, initial consultation to help you find the right solution for you and your business.