Can London’s Small Businesses Weather the Storm of Business Rates Increases?

London’s small businesses are expected to receive special bail-out fund to help weather the storm of business rates increases, but is it enough?

London busy high street

On Monday 6th March, The London Evening Standard announced plans for special bail-out fund for the capital’s small businesses, which are set to be among the hardest hit in April’s business rates revaluation. “Traditional retailers and firms facing crippling increases of 50 per cent or more are expected to be favoured in funds totalling ‘hundreds of millions’ of pounds” the front-page article reported.

For London’s small businesses, the overdue 2017 rates revaluation threatens to increase business rates by an estimated £7.5 billion. News of a bail-out fund is therefore welcome to startups and SMEs already fearing the worst of the brutal levy. But will it be enough?

Small businesses are set to be hit hardest by business rates revaluations

As the first business rates revaluation since 2010, the coming hikes are set to be one of the most redistributive of the last generation. Coupled with the London property boom and skyrocketing rents over the past seven years, businesses large and small are expecting huge increases for the next five year period.

Larger franchises are set to weather the business rates increases better than London’s smaller enterprises. There is relatively good news too for startups whose annual turnover does not exceed £12,000 per annum, as they’re eligible for business rates exemptions. It’s small and medium-sized businesses that look set to be hit hardest.

It’s also a disproportionate rise, especially when compared to those of northern cities which may well see see no change, or even a fall in bills. In fact, an estimated 600,000 businesses are expected to have their bills cut altogether.

But London and the South East face the biggest business rates increase in a generation. Across the capital, business rates are expected to increase by an average of 25.6 per cent over the next five years, with some businesses operating inside Zone 1 set to see rises of forty per cent or more.

The regional disparity, coupled with changes to the business rates appeals system adds insult to injury for London’s SMEs.

Small shops in London

Reforms to business rate appeals will also cost the UK’s small businesses dear

It has been warned that changes to the grounds on which the Valuation Tribunal for England (VTE) would be able to overrule the rateable value of commercial property would all but remove” the ability of businesses to appeal their ratings. Details of the new Check, Challenge, Appeal documentation, were first outlined in October 2015; this new system is planned to come into effect with the ratings revaluation on 1st April.

According to the latest research from business rates experts, businesses could face an extra £1.9 billion in business rates over the next five years as a result of Government attempts to block appeals against business rates valuations.

The government’s planned appeals regime seeks the right to dismiss any appeals against incorrect valuations that are deemed to be within the bounds of ‘reasonable professional judgement’.

If that ‘bound of reasonable professional judgement’ concerns queries with, say a ballpark 10 per cent margin for error on rateable values, a business with a £200m portfolio could see tens of millions of pounds piled onto their business rates bill.

However, it’s not just businesses with a considerable turnover who look to suffer. Back in November, Martin McTague, of the Federation of Small Businesses, warned “businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk”.

London high street

Will the proposed bail-out actually make any difference?

In a special announcement, the Department for Communities and Local Government tried to reassure small businesses: “For those ratepayers facing increases, London will benefit more than anywhere else in the country from the transitional relief scheme with almost £1 billion of support over the next few years.”

In fact, it is thought more than 140,000 properties in London will benefit from transitional relief for “cliff edge” hikes. Of those eligible, over 100,000 fall into the category of small properties.

Special sectoral funds have also been designated for industries that look set to be hit hardest by steep rises, such as retail and offices. But for some, that’s just not good enough; a one-off bailout just doesn’t offer a solution in the long run.

In Wednesday’s Budget announcement, a firm commitment to holding business rates revaluations more regularly is expected to follow. It’s hoped a three-year revaluation cycle will be proposed to replace the usual five-year system.

This would help avoid the considerable jump caused by having delayed the revaluation since 2010. It’s clear that longer-term reform is necessary to the outdated system to prevent comparably crippling business rates increases in future.

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