Thursday, April 06, 2017
Thousands of companies face a sharp adjustment in their business rates this April. So why are these rates changing, and what support is available following the Chancellor’s Spring Budget?
Business rates can prove controversial at the best of times, but the debate surrounding them is set to become even more heated this month.
Along with daffodils, the two Easter Bank Holidays, and hopes of warmer weather, this April will bring with it the first business rates revaluation in England since 2010. Rather than welcoming the change of season, it means a period of uncertainty now awaits many companies.
So what do commercial property occupiers need to know about this month’s landmark rate revaluation, and what support might be available to them following the Chancellor’s recent Budget speech?
How business rates work
Business rates are a form of tax applied to occupiers of mainstream commercial properties – covering everything from shops, offices and pubs through to warehouses and factories [SC1].
They’re overseen by local authorities and the Valuation Office Agency, who initially estimate a property’s rateable value – essentially the amount it could command in rent each year [SC2]. To work out a company’s final business rates bill, the rateable value is then combined with a multiplier set by the Government.
Business rates are normally recalculated every five years, to ensure companies are paying a fair amount that accurately reflects the performance of the wider property market. But this time it’s different, since this April’s revaluation will be the first in seven years [SC3]. With some regional property markets experiencing dramatic changes since 2010, sharp rate alterations are now on the cards for thousands of firms [SC4] …
The consequences of April’s revaluation
Business rates are generally recalculated using rateable values from two years previously. That means next month’s revaluation will be based on rateable values recorded in April 2015.
According to the Government, close to three quarters of companies will see no change in their business rates this time round – or even a fall. Ministers also believe that roughly 600,000 firms are unlikely to face a bill of any kind [SC5]. Yet with property markets in London and the South East in particular recovering strongly between 2010 and 2015, the situation appears less positive for other businesses.
Recent survey results from the Federation of Small Businesses (FSB) suggest 44% of smaller companies expect their business rates to jump by more than £1,000 a year as a result of the latest revaluation. Around a fifth fear their rates could climb by more than 40% [SC6].
Higher business rates could ultimately force companies to scale back in other areas, for example investments and staffing. The FSB’s research indicates that 54% of smaller firms might have to accept lower profits, while 38% may need to raise their prices.
Owners of commercial property will also be keeping a close eye on the situation, since a sharp hike in the business rates of their tenants could affect their ability to pay their rents on time.
What support is available?
On the face of it, things may appear somewhat gloomy for organisations expecting a sizeable rate rise. However, the good news is that there’s some support available, including:
Chancellor Philip Hammond’s recent Budget statement will provide further assistance, including:
Facing up to new uncertainties
In the short term at least, this month’s business rates shake-up could place more pressure on commercial property occupiers, forcing them to rethink how they operate.
As well as checking their eligibility for rate relief, companies should take the time to review their insurance policies and decide whether they’re still properly covered against all the potential risks they face.
As they enter a period of uncertainty, securing the right policy could shield companies from any financial disruption that may arise. Ultimately, even in the face of rising rates, insurance is one thing businesses simply can’t afford to cut back on.
NIG – we do more than you might think
NIG’s extensive range of products can cover the needs of commercial property owners, small or large, across a wide variety of industry sectors including retail.
For smaller retailers we offer our Shop eProduct. Designed to cater for a variety of retail premises, from modern retail parks to traditional high street shops, this product is available online via our award-winning online trading platform TheHub. Click here to find out more about our Shop product.
While for larger retailers we have our regionally-traded Retailers Combined Product. This offers all the cover of Commercial Combined with additional bespoke cover for retail clients. Click here to find out more about our Retailers Combined product.
For further information on these products or to explore the wide range of cover which we offer please visit our website.