In March 2021 HM Treasury published 'Fundamental Review of Business Rates', an interim report, providing an overview of responses to July 2020's Call for Evidence and subsequent policy decisions in advance of a final report which is expected in Autumn 2021.
Government has made the following policy decisions to date:
- A freeze in the business rates multiplier in 2021/22.
- Extra spending on assisting the Valuation Office Agency modernise and to work on the 2023 revaluation.
- A 100% business rates holiday last year continuing until June 2021.
- A 66% discount (capped at £2m for businesses forced to close and a lower cap for businesses that have remained open) for the remainder of 2021/22.
- See COVID-19 Business Rates
Summary of Responses
A summary of the responses provided for each of the main topics of the Call for Evidence are as follows:
Business Rates Reliefs
- The existing reliefs and exemptions system is overly complex.
- The high number of different reliefs increases the complexity and places a significant burden on local authority to administer and creates incentives for avoidance and evasion.
- The system favours small business over large irrespective of relative need.
- Reliefs are focused on the size of the property rather than the size of the business.
- Respondents in the hospitality sector asked for an extension of COVID-19 related reliefs.
- Calls for reform of Small Business Rates Relief as it has been identified as a possible deterrent to small business expansion.
- Calls for an 'improvement' relief to encourage property investment.
- Several respondents called for reliefs to apply automatically rather than requiring a claim.
- In practice, rates and rents are assessed together commercially so changes in rates could affect rent levels.
- A majority of respondents were opposed to giving local authorities discretion to set reliefs and exemptions.
- Targeted relief was requested for digital infrastructure, the extension of charitable rate relief, within the airport sector and an extension of Empty Property Relief.
Business Rates Multiplier
- Respondents were opposed to the fiscal neutrality of the business rate yield as this placed a higher burden on firms and did not reflect the current economic conditions.
- Opposition was expressed to increasing rates by inflation.
- Some respondents felt the Business Rates Multiplier should take into account the ability to pay.
- The most common preference was for a fixed multiplier with no annual uprating and no resetting at revaluation.
- There was a wide range of support for a reduction in the multiplier, but it was pointed out that this would impact larger ratepayers most.
- Annual revaluations would help align the business rate burden with the prevailing economic conditions.
- Respondents were opposed to the use of supplements unless they funded specific local infrastructure or capital projects.
- Smaller firms were supportive of continuing to use a supplement to fund Small Business Rates Relief.
- The majority of respondents were opposed to introducing regional multipliers and those based on property values as it would add additional complexity and could disincentivise improvements.
- There were mixed views on having sector-specific multipliers.
Longer-term reform in light of the scope of the review
Valuations and transitional relief
- Delays to prior valuations had led to liabilities being based on outdated valuations.
- The preference was for more valuations at three-year intervals.
- Most respondents were against zone-based valuations, with concerns around fairness.
- Respondents were supportive of requirements to provide information in annual returns if this allowed more frequent valuations to take place.
- There were calls for increased digitisation and improvements to the existing system.
- Respondents thought the gap between Antecedent Valuation Dates (AVD) should be shorter than the current two-year window.
- The gap between AVD and valuation were seen as equally important.
- There was strong support for the existing basis of rateable value.
- Turnover-linked rents in lease agreements may cause valuation issues.
- The majority of respondents had no concerns about the valuation methodology that had applied to their properties.
- Some sectors had concerns about the unfairness between ratepayers caused by the Contractor’s Basis of Valuation and there were calls to review the cap on age and obsolescence allowances.
- Downwards transitional arrangements should be abolished as they unfairly penalise those with properties that have seen a fall in rateable value.
- Support for those with rising bills should be maintained.
Plant and Machinery investment
- Current business rates treatment discourages green energy investment in property as does the removal of Feed-In Tariffs.
- There were calls to increase the size limits on microgeneration relief to incentivise investment.
- There were calls for the removal of plant and machinery from assessments.
- Exempting certain types of plant and machinery could incentivise specific investment.
- Wider exemptions for plant and machinery could lead to more complexity and offer only a modest benefit.
- A time-limited relief, or exemption, applying to green energy investment and decarbonisation would help business rates system support investment and growth.
- Concerns were raised about the inbuilt efficiency of newer buildings and stated relief should target those buildings in need of modernisation.
- There could be a differential between the landlord making the expenditure and the tenant receiving the benefit of any reduced rates relief which may prove disincentive.
Valuations, transparency and appeals
- The HMRC digital interface is frustrating and not user-friendly.
- Respondents wished to reduce time limits to six months for checks and 12 months for challenges.
- Views on sharing lease details were mixed. Some participants were happy to provide information providing it was not burdensome, while others were conscious of the privacy of their commercially sensitive information.
- Support was given for the current accessibility of the Check, Challenge, Appeal system.
Maintaining the accuracy of rating lists
- More than half the respondents agreed the introduction of a requirement to provide VOA with rental leasing information would improve the accuracy of rating lists.
- Dissenting voices pointed out the additional burden on ratepayers and thought the VOA would struggle to process the additional information.
- Increased transparency could lead to fewer challenges and other advantages, however these need to be weighed up with the potential cost of disclosing sensitive information.
- A requirement to notify of lease changes that could affect rates was positively received by half the participants if the process can be managed to reduce bureaucracy.
The billing process
- Respondents generally expressed dissatisfaction with the current billing process.
- Digital billing may help.
- The online portal should be extended for agents, not just the ratepayers.
- Disparities between software and billing authorities caused concern for larger ratepayers.
- Simplifications of reliefs would help billing.
- There was some support for a centralised billing system linked to other business taxes as it would simplify and support firms in understanding calculations and allow them to plan accordingly.
- Any new system should be operational and accessible.
- Centralised billing concerns included difficulty to administer given the complexity of the rates system, and the localised nature of billing.
Exploring alternatives to business rates
- Respondents were widely opposed to replacing business rates with a Capital Values Tax due to difficulties in implementation, lack of ownership register and the administrative disruption a new system would cause.
- Lower numbers of sale comparable and any pending planning permissions would mean capital values were harder to assess which could cause more appeals.
- A CVT was thought to disproportionately affect businesses with high land use such as manufacturing.
Online Sales Tax (OST)
- Respondents in favour argued it would fairly distribute the tax burden offline retailers currently face.
- An OST may help to rejuvenate the high street.
- An OST would be a tax on innovation and investment in UK’s growing digital economy.
- Retailers would pass OST on to consumers affecting the disposable income of those in low-income households and rural communities.
- It would be difficult to implement.
- There is a general agreement that an OST should focus on large profitable online enterprises rather than Small to Medium-sized Enterprises (SMEs).
- There is debate as to the products and services that an OST should cover if implemented.
July 2020 Business Rates Review: Interim Report
March 2021 Business Rates Review: Call for Evidence