What directors need to know about business rates arrears

The review is still accepting evidence submissions until August 24th 2021 so business owners and directors are still able to register their views and opinions until then by completing an online survey. 

Business rates had been held in abeyance since March 2020 when the government introduced a business rates holiday for retail, hospitality and leisure businesses for the whole of the 2020/2021 tax year.
This was due to end on March 30 2021 but was extended until June 30th 2021 and that the business rates multiplier would be frozen for the whole of the 2021/2022 tax year as well. 

Business rates are now live again although relief continues at a rate of 66% until March 31st 2022. 

It will be capped at £2 million per business for properties that were legally required to be closed on January 5th 2021 or at £105,000 per business for other eligible properties.  

There was also a one-off top-up grant available of £9,000 per property and a £594 million discretionary fund made available to support businesses that weren’t eligible for the grants but were affected by Covid-19 restrictions. 

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This is against the background of continuing chaos for high street retailers. 

Helen Dickinson OBE, Chief Executive of the British Retail Consortium said: “The retail vacancy rate is continuing to rise. 

“Many shops and local communities have been battered by the pandemic, with many high streets in need of further investment. Unfortunately, the current broken business rates system continues to hold back retailers, hindering vital investment into retail innovation and the blended physical-digital offering. 

“The Government must ensure the upcoming business rates review permanently reduces the cost burden to sustainable levels. Retailers want to play their part in building back a better future for local communities, and the government must give them tools to do so.”

Doug Putman, owner of the HMV chain said that the government urgently needed to fix business rates which can take years to adjust to reflect the actual levels of rent paid. 

This results in many retailers paying higher business rates despite rents falling as internet competition increases. 

To add insult to injury, online retailers pay lower business rates because they operate from fewer properties and can base their warehouses in cheaper business rates locations. 

Putman said: “If the government doesn’t fix the rates, high streets are going to see a lot more vacancies. 

“Business rates just don’t make much sense. You can pay zero rent and still not make a profit on a store as rates are too high.”

The business rates review has been promised for some time. 

The system provides approximately £32 billion to local authorities but one of the main criticisms is it’s trying to raise too much money from too few property occupiers. 

Physical retailers pay between a quarter and a third of this amount but, while a critical component, retail adds less than 10% to the national GDP – and this was before Covid-19.

Additionally the annual business rates multiplier, currently set at 51p in the pound, is effectively a 50% tax increase baked in which will further burden businesses struggling to break even or make a profit. 

Most citizens and businesses accept that the system plays an important role in generating funds in a manageable way and is difficult to evade as it’s physical and property based but every system can be improved. 

As well as general wishes such as lowered rates and a reduction in the multiplier, what else could we expect to see when the review is announced later this year? 

Among the more popular suggestions for changes include:- 

  • Relief reform – business rate relief is necessary for those that need it but it has become so widespread and disparate that it’s often considered permanent. Reform will avoid any obvious loopholes and a regular review as part of every revaluation cycle would help.
  • Empty rates relief – as retail vacancies increase to previously unseen levels, the idea that landlords are causing commercial properties to remain empty is questionable when set against the long-term socio economic factors affecting high streets and retail including simple lack of market demand. Currently only the warehouse and industrial sectors receive six months empty rates holiday so this could be extended to offices and retailers too.
  • Plant and machinery clauses – currently business rates could be seen as an obstacle to investment if a business had to pay extra for installing new plant and machinery. If they were exempted from business rates then the rating system could be more closely aligned to official policy to reward businesses and promote investment in green technology.
  • Reduce revaluation period – the current five year revaluation period looks like it will be reduced to three years following the publication of the review but many critics still think this is too long in the fast moving modern world. An annual revaluation would be fairer and would also introduce more certainty for businesses going ahead.
  • Reduction and replacement – Some retailers believe that other taxes could reduce the burden of business rates on the retail sector. An online sales tax or delivery tax would increase the burden on online retailers and allow physical shops to have theirs reduced to compensate without affecting the overall tax take. 

The idea of business rates supporting local services might also be one that is fundamentally examined in future. 

The Local Government Association (LGA) has warned the government that any changes to the business rates systems has to recognise the importance of this income stream for funding local key services and look to increase funding sources as confidence in the current system dwindles. 

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Usually business rate arrears can be a serious problem for businesses as the creditor in this case is their own local council. 

They would usually send a reminder letter followed by a summons and look to be granted a liability order which would give the council additional powers to enforce the debt including the use of bailiffs and ultimately insolvency proceedings to close a business down.

Now business rates are eligible to be paid again, albeit with a high relief level, it could quickly turn into a serious headache for business owners and directors who’re already having to work out how they can make bounce back loan repayments, rent, VAT and increased contributions to any staff remaining on furlough with potentially permanently reduced income streams. 

If you think your company might have to choose which bills to pay and which to let go into arrears then get in touch with us first.

We’ll quickly arrange a free, initial consultation where we can get a broader understanding of your situation and what your near and medium term prospects look like. 

Working closely with you, we can then provide a series of options to help protect the business and better manage your debt obligations or create an orderly path to closure which would also take care of any bounce back loan or business rates arrears that have or will build up in the meantime. 

Whichever approach is best for you and your business, we’ll be able to help you manage it efficiently, effectively and as stress free as possible.