Business leaders from eight trade bodies have condemned Government plans to stop businesses appealing incorrect business rates calculations with new research showing SMEs could be hit with more than £700m of unfair taxes.
Research has discovered that the Treasury’s “unjust” business rates appeal block could cost SMEs £700m.
- Eight lobby groups representing SMEs, retailers, pubs commission research and demand rates fix
- New data shows huge cost to small firms
- Experts say tax bombshell could kill off businesses
Under the ‘reasonable professional judgement’ provision, ratepayers won’t be able to argue against a rates bill if its margin of error was inside 15 percent. Research by Daniel Watney LLP and Blackstock Consulting using official VOA data estimates it could cost small firms in England more than £700m over the next five year rating period.
The proposal is included within draft regulations for the new business rates appeal regime known as ‘Check, Challenge, Appeal’, which has been widely condemned by every major business lobby group.
The consortium represents thousands of small businesses, pubs, property owners, hotels and retailers, and includes the FSB, BPF, BBPA, Revo, BRC, BCA, BHA and ALMR.
The reason for the outcry is that even a small percentage difference in a rates bill can make the different between firms paying something and nothing at all. Small companies enjoy relief for low value properties. This means that if the VOA over-valued them, they could extra more money from SMEs without them having any recourse.
Debbie Warwick, head of rating from Daniel Watney LLP, a property consultancy, said:
“For most businesses, rates are the third largest expenditure and for any ratepayer an overpayment of 15% will impact profitability.
“Rating professionals fully understand the need to reduce the number of spurious appeals, especially at a time when the Valuation Office Agency is dealing with year after year of budget cuts. This can be remedied by helping ratepayers better understand the basis of their assessment from the outset and demonstrating that their assessment is fair in relation to others.”
Using official Valuation Office Agency data, the research found that qualifying small businesses whose properties had a rateable value (RV) between £12,000 and £15,000 could overpay by up to £137m a year if this new rule is applied. Over the full five-year ratings cycle, this would work out at more than £689m. The full figure would also include business above the £15,000 threshold too – increasing the potential cost significantly.
Of those overpaying the £689m, there are many whose assessments would fall below 12,000RV and be totally exempt from rates if their assessment was reduced by up to 15%, but under the proposed ‘reasonable professional judgement’ clause could be denied these reductions. Those that could qualify for total relief will instead pay out £431m of the £689m total over five years.
The consortium of business leaders has warned that the new changes could allow the VOA to overvalue properties with impunity, since companies would have no recourse whatsoever.
Martin McTague, Policy Director at the Federation of Small Businesses, said:
“We welcomed the Government’s ambition to make the business rates appeals system fairer and easier to navigate. However, it is hard to see how this proposal helps to achieve that aim. We believe this clause simply fails the fairness test and could result in the door being shut on small businesses who want to correct inaccuracies in valuations and reduce their rates bills. This research shows that businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk.”
Jerry Schurder, head of business rates at property consultancy Gerald Eve, said:
“These wildly unfair proposals represent the Government’s intention to grant itself the equivalent of papal infallibility and legislate away its errors, making hard-pressed businesses pay for the VOA’s mistakes. The Government seemingly has no confidence in the VOA’s assessments, in which case it needs to reform the VOA or the system, not penalise businesses by outlawing appeals.”
Melanie Leech, chief executive of the British Property Federation, said:
“It is hard to see how these proposals improve our broken business rates appeals system. They will undermine ratepayer confidence and compound the already high burden of business rates. Not only do businesses and jobs suffer as a result, but the more money that is spent on business rates, the less that is available for property owners to invest in improving our towns and cities.”
Jennifer Brooke, Executive Director at the Business Centre Association said:
“At a time of uncertainty for the UK economy government should be nurturing micro businesses and SMEs, the key sectors currently encouraging entrepreneurship and from which the future engines of growth for UK Plc will emerge. The proposed changes undermine the confidence of business in the system, promotes uncertainty and risks pushing smaller businesses into financial difficulties.
“For operators of business spaces, particularly for those in the serviced and shared space sector, the impact will be significant with costs inevitably passed on to small businesses. At the entry level, this is likely to make costs prohibitive for companies just starting out and will act as a brake on innovation, invention and growth. The reforms fly in the face of a simple, fair and transparent tax system and is likely to result in costly and inefficient legal challenges.”
Let us know your thoughts as owners and tenants of commercial property – what impact has the latest rateable value had on your future business rates bill?