Should business rates be overhauled?

Many members of the business community have been asking for a re-evaluation of business rates for some time now. The current system has been deemed unfair by many businesses and the need for reform has now been magnified by the economic disruption caused by the coronavirus (COVID-19) pandemic. We look at business rates and consider some of the options for a fairer, better solution to support businesses.

Critics acknowledge that business rates are, and should remain, an important source of revenue, for both central and local authorities. However, the government has recognised the need for reform by launching a fundamental review and a subsequent call for evidence. 

Unfairness and uncertainty

Many of the problems businesses currently face with rates are caused by a lack of information about the calculation of rateable values, which only serve to highlight the perceived unfairness of the system. This in turn is exacerbated by the lack of certainty around how much business needs to pay.

In addition, although the government is committed to complete revaluations every three years, more timely data would maintain a more accurate valuation.

Critics say these problems mean that a fundamental rethink of property and business tax is needed in order to find a long-term solution.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), better use of technology and more transparency could help to address some of the unfairness within the business rates system.

The cost to business

Business rates aim to provide revenue for local government and are a combination of business tax and property tax. According to the ICAEW, business rates generated £30 billion for the government during the 2018/19 financial year. However, the business rates holiday introduced to support organisations through the COVID-19 pandemic is estimated to result in foregone revenues of £10 billion.

Critics of business rates say the current system means they fail to reflect either property values or business activity accurately.

The call for change

The growing consensus that the current business rates system is out of date and unsustainable has only been magnified by the strain businesses have been under during the COVID-19 pandemic, further fuelling the calls for change.

The ICAEW says there must be a clearer link with current market values. It says better use of technology could provide a clearer link between market rents and business rates. It also says that the roll-out of digital tax systems should make it possible to enable more timely maintenance of valuations.

Furthermore, the ICAEW suggests that the government investigates whether the Valuation Office Agency could share more details about assessments, including how a valuation was calculated. 

In addition, the Confederation of British Industry (CBI) has set out a package of measures, which it says would save business £21.8 billion over the next five years.

It says the government should delay the next valuation date until 1st October 2021, shortening the valuation period to 18 months. This would ensure bills reflect the current economic situation and the property market in a post-COVID world. 

Business rates affect businesses of all sizes. As your accountants, we can help you plan your cashflow as efficiently as possible. Please contact us for further advice.