New figures have shown that thousands of businesses have gone into insolvency while they were waiting for the results of their business rates challenges to be concluded, which could potentially have made the critical difference. 

Some 3,165 businesses could have been eligible for a backdated payout which they might have been able to use effectively to continue to trade or bought them more time rather than choosing to go into liquidation and close for good. 

It’s an ironic and expensive fact that business rates have increased at the same time that property valuations have come down and other bills – specifically energy – and costs have increased. 

A three stage appeal process – check, challenge, appeal – was introduced in 2017 for companies to appeal against their decisions if they disagree with them based on the property valuation which the local councils use to base their calculations for the rates on. 

Appeals are heard by the Valuation Office Agency (VOA), which is an executive agency of HMRC. They are expected to resolve 90% of all challenges within 12 months but since the introduction of the appeal process have not met these targets. 

During the financial year of 2020/2021, only 43% of cases were resolved in line with the publicly stated target. 

In the latest quarterly snapshot from Q2 2022, only 2,830 of challenges had been resolved which was a 28% reduction on the previous quarter. HMRC received more than 4,200 requests during the same period. 

This contrasts with more than 5,600 businesses who became insolvent between April and June this year which was already up 13% on the previous three months and 81% higher than 12 months ago. 

Transitional Relief

The British Retail Consortium is also calling for an end to “downwards phasing” in a review on Transitional Relief (TR) of business rates in the near future. 

They estimate that a failure to fix this and other flaws in the system could cost the industry over £1 billion. 

Transitional Relief saw retail subsiding other sectors to the tune of approx. £550 million between 2017 and 2020 on government owned infrastructure and also forced businesses in nominally poorer parts of England, where rents were dropping to subsidise those in better off areas, where rents were rising. 

Consultation has just closed on the design of the TR scheme for the 2023 Business Rates revaluation, although ultimately it will be up to the next Prime Minister and Chancellor to finally decide how to proceed with any reforms to the system. 

Transitional Relief limits how much a company’s business rates can change in a given year. 

It forces those who are being overcharged on business rates, as their rateable value falls, to subsidise those who are underpaying, as their rateable value rises. The idea is that businesses are gradually moved to the correct rate over a period of years. 

This is in contrast to other types of business or personal taxes where those who are overpaying are immediately moved to their correct or lower level of tax. 

Currently the business rates multiplier, which is applied to the rateable value of a property to calculate a company’s business rates liability, is set at 51.2p in the pound but TR will force some to pay at a much higher rate than this. 

Retailers are already having to juggle rising costs on every front from staff wages, inflation, energy bills and supply chain costs and do their best to limit how much is passed onto consumers but this eats into what little margin is already left.  

Any money lost to Transitional Relief in 2023 to 2026 must be accounted for. 

Tom Ironside, Director of Business and Regulation at the British Retail Consortium, said: “The business rates system is damaging our high streets and town centres by directly undermining store viability. 

“The retail industry accounts for 5% of the economy yet is saddled with 25% of the total business rates bill. This is directly contributing to the loss of shops and jobs, particularly in many of the parts in the UK in need of “levelling up” and putting additional pressure on prices.

“Transitional Relief is a flawed system that could cost retailers over £1 billion during the next three years, leaving them with no choice but to close those shops which are most impacted by artificially inflated rates bills.

“This is money which would be used to help address the cost of living, or support the vitality of towns and cities around the UK. In the short run, the most impactful changes that any new Prime Minister could make to reform business rates, would be to scrap the “downwards phasing” part of Transitional Relief.”

The issues caused by business rates and Transitional Relief, although more problematic for some businesses than others, are the latest data points and symptoms in the worsening forecast for companies for the rest of 2022. 

Despite the prospect of a new prime minister and top team in Downing Street next month, it could still take many more months for any help to be forthcoming for businesses beset on all sides by straightening circumstances. 

So whether your business is feeling the financial pressure right now or think it might in the coming weeks – the time to take action is now. 

We offer a free and comprehensive initial consultation for directors and business owners with an experienced advisor. 

Once they have a clearer picture of your situation, they will be able to talk you through the range of options available to you, probably more than you initially thought you might have and definitely more the earlier you look for advice and support. 

They will also be able to help you implement any decisions you’ve taken too but only if you take the most important and pivotal decision you might make this year – and get in touch while you still have the agency to act.