Budget 2016 – Business Rates

The burden of business rates has been a recurring theme of press coverage in the lead up to Budget 2016. In the event, the Chancellor’s announcements on business rates have a “jam tomorrow” theme, rather than offering any immediate relief to ratepayers in the UK, whose property taxes are the highest of those in any major economy, according to a recent OECD survey.

The key announcements from Budget 2016 are:

• Small Business Rate Relief – this relief was doubled for 2016/17 as part of the Autumn Statement announcements. Budget 2016 announced that doubling will become permanent from 1 April 2017. This will effectively exempt from business rates all small businesses occupying properties with a rateable value up to £12,000.

• Uniform Business Rate (UBR) for larger properties – the level at which properties become liable to pay the higher level of UBR will rise to Rateable Value £51,000 from 1 April 2017. This UBR is currently 1.3 pence above the standard rate and is currently paid by properties with Rateable Value £18,000 or more (or £25,500 or more in London. This will offer a saving of about 2.5% in rate liability for some 250,000 properties that will pay the lower level of UBR from 1 April 2017.

• UBR to be linked to CPI from 2020 – At present the UBR is increased in line with RPI each year. From 1 April 2020 the increase will be linked to CPI rather than to RPI. Recently CPI increases have been about 1% lower than RPI increases.

• Revaluations – Aim to introduce more frequent revaluations for business rates. This is an “aim” rather than a policy and will be the subject of a discussion paper to be published this month. The suggestion is that revaluations should take place at least every three years.

• Retention of business rates by local authorities – The Chancellor had already announced a move to increase the percentage of business rates retained by local authorities from 50% at present, to 100% by 2020. He has now announced that for Greater Manchester, Liverpool City Region, and Greater London that change will be brought forward to 2017. Coupled with this, the Greater London Authority will take on responsibility for Transport for London capital projects.

• Changes to billing arrangements – By 2017 all business rates bills will be in a standard format and ratepayers are to have the option to be billed and to pay online. By 2022 all local authority business rates systems are to be linked to the HMRC business taxation systems, with the aim of offering smaller businesses a business rates allowance in place of the small business rate relief.

The changes announced by the Chancellor fall far short of the fundamental reform of business rates that appeared to be on the agenda when the Chancellor announced a structural review of business rates, with the aim of making the tax “fit for the twenty-first century”.

The immediate changes are welcome but limited ones. The move to link to CPI is particularly welcome, but is delayed until 2020. The doubling of small business rate relief really does little more than make permanent a relief that has been in place since October 2010. The move to take a significant tranche properties out of the higher level of UBR will offer some limited relief but the worry is that the supplement paid by the remaining properties will be increased to make good the shortfall, and the Budget announcement contains no undertaking that will not happen.

The longer term changes do not go far enough to address the fundamental problems that have been associated with the tax for a number of years now. The tax rate, which will be nearly 50% for larger properties from 1 April 2017, is well above other levels of corporate tax in the UK and all international surveys point to the fact that UK property taxes are above property taxes in competitor countries in the EU and elsewhere.

In short, some welcome but limited immediate measures bolstered by a rather timid agenda for longer term changes, which focuses on changes to billing systems and more frequent revaluations, rather than on a fundamental rebalancing of taxes on property.