What you need to understand

Business rates though have always met with more opposition than most and John Allan, Chairman of Tesco and the Confederation of British Industries, has launched the latest multi-pronged attack, calling them “uneconomical, unsustainable and unintelligible”.

Speaking at a CBI conference, Mr Allan cites recent corporate administrations such as Debenhams and the debilitating effect that high business rates can have even on large retailers.

His high profile intervention comes as MPs on the Treasury Select Committee are currently investigating the impact of business rates and considering possible alternatives to the property-based tax.

What are business rates?

There has been some form of tax on business properties in England since 1572 with the proceeds traditionally used to fund local services. The most recent iteration came into force as the Local Government Finance Act 2012 which, amongst other measures, changed the income formula to allow local authorities to be able to keep half of the revenue collected, with the other half going to central government who would then distribute it to other local authorities in the form of revenue support grants.  

Business rates are calculated based on a property’s estimated value on the open market with appraisals taking place every three years. The CBI and others want this system to move to an annual appraisal citing regional variations and other economic events which means that rates “lag far behind economic cycles and property prices” claiming that economically depressed areas are overpaying when there is weak demand and the effect is the same for areas undergoing a revival.

John Allan told the conference: “The lag between an area’s boom in property prices and its latest business rates revaluation has seen firms suddenly having to cope with an almost 50% increase in their bill – that’s a hit that some won’t be able to survive.”

The next rates revaluation is scheduled to take place in 2021 and Chancellor Philip Hammond brought in some changes in the last Budget In an attempt to help small businesses.

From April this year businesses in a property with a rateable value of less than £51,000 will see a 33% reduction for two years. He estimated that this would be an average annual saving of £8,000 for 90% of independent businesses. This is in addition to £12 billion of business rates relief already announced by the Treasury.

Non payment penalties

Sadly, regardless of how fair or unfair you may believe your business rates to be, they remain a legal requirement and failure to pay can have severe legal consequences.

A council can raise a Liability Order which requires the recipient to pay the full amount of any business rates owing along with any additional costs incurred.

If the amount isn’t cleared then a court has further sanctions at its disposal including:

  • High Court Enforcement officers or bailiffs being instructed to recover assets or property.
  • If the debt is greater than £750 and a company has sufficient assets then the council could launch insolvency proceedings against it to have it wound up and the debt recovered through this method.
  • If a debt remains unpaid then the council ultimately has the power to apply to magistrates to have a debtor imprisoned but this is rare and only occurs if enforcement officers are unsuccessful in recovering the outstanding debt.

Owing outstanding business rates is an intractable problem for any company – it is not going to go away.

If you are facing this scenario or have other outstanding business debts then the best thing you can do is to contact us and set up a free consultation to look at your situation in more detail.

We can look at the circumstances and let you know exactly what your options are.