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Autumn Statement: Business rates changes welcome, but do they go far enough?

The latest Chancellor, Jeremy Hunt, has today (17 November) delivered yet another Budget for 2022 with a focus on bringing stability, growth and the rebuilding of public finances.
November 17, 2022
Included as part of the measures announced were several changes to business rates – something which had been noticeably absent from the mini-budget.

Our business rates experts summarise what was announced and what this will mean for the business community ahead of Revaluation 2023, which is expected to have a significant impact on businesses.

Revaluation will go ahead

It was confirmed that, despite concerns raised by industry, Revaluation 2023 will still go ahead on 1 April 2023.

From this point, the rateable values of all non-domestic properties in England will be updated to reflect the property market at 1 April 2021.

The aim of this is to ensure business rates bills are fairly distributed across all non-domestic properties and reflect changes in market conditions since 2015.

However, many businesses – particularly those occupying industrial property which in April 2021 was booming – will face a significant hike in business rates as a result. Meanwhile, office occupiers will see their rateable values based on a significant lack of market evidence, since no deals were being done in April 2021.

Therefore, any increases / decreases in rateable value for office occupiers, will need a full forensic review of the rental levels in their respective locations.

All of this at a time of recession, rising energy costs and a cost-of-living crisis. So, what has the Government said they will do about it?

A package of support worth £13.6 billion over the next 5 years was announced by the Chancellor, to support businesses at the 2023 revaluation.

This includes freezing the business rates multipliers at 49.9p and 51.2p in 2023-24, which, it is claimed, will see bills 6% lower than without the freeze.

A range of other measures to support the high street and small businesses were also announced, including the extension of the Retail, Hospitality and Leisure relief scheme into FY23/24, which has also increased from 50% to 75%.

According the Chancellor, this means an estimated 230,000 business properties will get a £2.1 billion tax cut next year. However, this relief is still capped at a maximum of £110,000 per business.

This is obviously a welcome continuation of an extremely successful relief, but does not help the larger chains propping up the High Street.

Meanwhile, a Transitional Relief Scheme (TR) is also to be brought in, following the consultation earlier this year on transitional arrangements that were to be adopted at the 2023 revaluation.

What is Transitional Relief (TR)?

The 2023 TR scheme recognises the wider economic challenges faced by businesses, by providing more generous support than previous schemes.

It is designed to support ratepayers facing large changes in their liabilities as they adjust to their new business rates bills under the new rating period.

Following the consultation on this earlier this year, the Government is reforming TR by permanently removing the requirement for revenue neutral transitional arrangements.

What does this mean?

According to Government, this will make the business rates system ‘fairer and more responsive’.

It will help to address the tax burden imbalance between online retailers and bricks and mortar sales by allowing ratepayers whose properties see a fall in rateable value, to immediately see the full benefit of the revaluation reflected in their bills.

To support ratepayers across England as they transition to their new bills, the 2023 TR scheme will instead fund upwards caps at a cost of £1.6 billion – caps which the Government claim are significantly more generous than in 2017.

Downwards TR has been completely scrapped, in real terms this means that any reduction in rateable value at Revaluation will be passed straight on to the occupier and is a very welcome introduction which is estimated to benefit around 300,000 properties.

As a result, the total amount of business rates paid by the retail sector is estimated to fall by 20%. However, this will rise 27% for large distribution warehouses ‘to reflect the growth in the online sales sector’.

Upwards TR remains and the initial 5% and 15% caps on increases for small and medium business respectively, is another sign that any increase won’t be painful. However, the 30% cap for larger properties (£100,000RV) will be painful and we envisage this to be an issue for the industrial occupiers in particular.

Downwards TR has been completely scrapped, in real terms this means that any reduction in rateable value at Revaluation will be passed straight on to the occupier and is a very welcome introduction which is estimated to benefit around 300,000 properties.

Adam Barnfield, Head of Business Rates.

Upwards Caps

2023/24

2024/25*

2025/26*

Small (RV up to £20k or £28k in London)

5%

10%

25%

Medium (RV between £20k to £100k)

15%

25%

40%

Large (RV greater than £100k)

30%

40%

50%

Do the changes go far enough?

It is welcome to see that business rates and the challenges of the business community have finally got onto the radar of one of this year’s Chancellors.

The Government claims that this support package will mean that the total increase in business rates bills will be less than 1%, compared to over 20% without their intervention.

Whilst on paper this looks to be impressive, questions remain over whether these measures go far enough to support businesses during one of the deepest recessions in 40 years.

As ever, the devil will be in the detail and we will work closely with our clients to help them to understand what the impact of these changes will be on their businesses, once the Draft Rating List is published.

 

 

*Year 2 and 3 caps are before inflation. Note: these are year on year caps on increases. Caps are applied before changes in other reliefs and supplements such as the 1.3p supplement paid by those on the national multiplier and the premium paid in the City of London.