The 2021 Budget, presented to Parliament on 3 March 2021 by the Chancellor of the Exchequer, Rt. Hon. Rishi Sunak MP, offers a limited extension to the business rates holiday announced in the 2020 Budget for properties in the retail, hospitality and leisure sectors, in response to the effects of the COVID-19 pandemic and the measures introduced to respond to the pandemic. The 2021 Budget confirms that the 100% business rates holiday will continue, for qualifying properties, for three months from 1 April 2021 to 30 June 2021. Thereafter business rates relief for qualifying properties will continue at a rate of 66% relief for the rest of the 2021-22 rate year, until 31 March 2022, but will be capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.
The rates holiday will also be extended to nurseries (child nurseries, rather than plant nurseries) at 100% for April to June 2021 and at 66% for the remainder of the 2021-22 rate year. Local authorities will be fully reimbursed for the cost of these reliefs. The reliefs announced in the Budget apply only in England, but the Chancellor has made clear that equivalent funding will be made available to the devolved administrations to support rates reliefs in other parts of the United Kingdom.
The properties to which these reliefs apply will be the same as those in the 2020 budget – properties used for retail, hospitality and leisure purposes. That definition included shops that were not required to close, such as food retailers. A number of businesses in this category, that benefitted from the rates holiday but remained open, later took the decision to repay the rates reliefs received. Most notable amongst these were major food retailers. The repayment of this relief has proved problematical for a number of reasons, including the fact that its tax treatment as a “donation” would have left the businesses concerned worse off than if they had paid rates in the first place! To correct this the Chancellor has announced that the Government will introduce legislation to ensure that the business rates relief repayments that have been made by these businesses are deductible for corporation tax and income tax purposes. This will ensure that these businesses are no worse off from a tax perspective than if they had paid the business rates in the first place. This will apply for repayments made to the devolved administrations as well as to those made in relation to England.
The Chancellor also announced further support for airports, by renewing the Airports and Ground Operations Support Scheme for a further six months from the start of 2021-22. This will provide support for eligible businesses in England up to the equivalent of half of their business rates liabilities during 2021-22, subject to certain conditions, and subject to a cap of £4 million per claimant.
Hidden rather deeper in the small print of the Budget document is the announcement of additional funding of £180 million for HM Revenue and Customs in 2021-22, to provide “additional resources and new technology”. This is targeted to bring in over £1.6 billion of additional tax revenues between now and 2025-26, and its aims include “initial design and development of digitalising business rates to help modernise the business rates system in England and support more effective analysis and oversight of the collection of the tax”. This is a surprising announcement given that the Government’s “Fundamental Review of Business Rates” is still outstanding, and has been deferred to the autumn. If decisions around digitalising the system have already been taken, a cynic might conclude that the fundamental review might not turn out to be as fundamental as it was advertised to be.
The Budget statement confirms the Government’s previous announcement, reported in these news pages, that the business rates multipliers for 2021-22 will be frozen at the same level as 2020-21, which is to say 49.9 pence for “small” properties (under Rateable Value £51,000) and 51.2 pence for larger properties in England.
Finally, the Budget also included an announcement that the Government will legislate for powers to establish “tax sites” at Freeports in Great Britain. East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England. Subject to agreeing their governance arrangements and successfully completing their business cases, these Freeports will begin operations from late 2021. Tax sites within these Freeports will benefit from full business rates relief, once designated. Relief will be available to all new businesses, and certain existing businesses where they expand, until 30 September 2026. Relief will apply for five years from the point at which each beneficiary first receives relief. It is not clear whether this relief will be subject to state aid limits. Freeports in Wales and Scotland will be subject to rules set by the devolved administrations there. At present rule changes following Brexit mean that Freeports will not be established in Northern Ireland for the time being.
Taken all together, the Budget announcements represent not so much “more of the same”, but rather “less of the same”. Business rates reliefs for the effects of the COVID pandemic are now clearly time limited and this must be of real concern to many ratepayers who can see their liabilities returning, but not necessarily their income. The key question is whether the, now delayed, fundamental review of business rates will actually deal with the root causes of problems with the business rates system – excessively high tax rates and ridiculous over-complexity. Some of what appears in the Budget must raise concern over whether this will be addressed.