By Bradley Westlake – Head of Business Rates at RCK Partners
Now that the dust has finally settled on a swiftly called General Election, we are now less than a week into a Labour Government who have promised significant change – change across board from Healthcare to Immigration, House Building to Taxation including Business Rates.
This isn’t new however, we have seen manifestos and headlines from many new Governments promising reforms to the Business Rates system – so we have to ask the question, is this going to be different?
Business Rates are a property tax charged on all commercial property (with some exceptions) across the UK, which brings in revenue of around £29 billion per year to the coffers.
It has an extremely high collection rate so Labour’s promise to “replace the Business Rates system” is an extremely bold one.
In replacing a system which has existed in its current format for a considerable period of time, the Labour Government will have to create something, which is completely revenue neutral something which they have promised to do.
They mention that the new system will assist in levelling the playing field between the high street and online giants (something which has already been consulted on under the previous Government – response to this can be found here)
Labour advises that these new changes will provide better incentivised investment, tackle empty properties and support entrepreneurship.
Perfect soundbites, which all look and sound great on the face of things – but how do you go around actually implementing such changes?
There have been talks surrounding the changing of Empty Rates relief for some time, and there were changes in the last Conservative budget to try and tackle the rates mitigation loopholes, which have existed for some time (you now need to occupy a property for significantly longer than the previous 42 days).
There have been discussions about having significantly increasing the time in the 100 per cent relief exists for and then having an empty property pay 100 per cent rates from this point.
This would look to encourage landlords to get their properties occupied, something which with the Empty Rates relief loopholes don’t really encourage you to do.
Retail properties, which currently exist on the High Street have been receiving 75 per cent relief for some time now – this helped the High Street to recover after the pandemic, but how do Labour tackle the fact that this Relief cannot be awarded forever.
Do they look at amending the Small Business Rates relief brackets (0-12k pay nothing and 12-15k on a tapered scale) and increase these to ensure that those businesses pay nothing whilst only occupying their one High Street business?
This in itself causes issues because then you punish those who look to expand their small business (as taking on another property will cause you to lose your relief).
We already know that Labour intends to remove the VAT break which is awarded to Private Schools to aid state education – but they will also remove their ‘charitable status’ and, therefore, the 80 per cent Mandatory Relief that comes with it.
How will this impact other bodies, which receive relief which aren’t registered charities and how will these increased liabilities be reinvested into the system? Remember – any changes proposed by Labour to Business Rates are meant to be revenue neutral.
We also need to be mindful of the Valuation Offices intention to launch ‘Duty to Notify’. This was ratified in the Non Domestic Rating Act 2023.
When brought into effect Ratepayers will now be responsible to notify the Valuation Office of any changes to the property, which may affect the Valuation as well as providing rental information etc.
Previously there was no onus on the Ratepayer to do this (other than the VOA’s forms of return) The penalties are extremely harsh for no-compliance and if the Labour Government intends to reduce payments to £0 for the High Street.
How do you intend to keep Ratepayers engaged enough to ensure that they advise the VO of any rental information or changes to the property etc?
Alongside this tough job, the Labour Party must bring in the promised changes as per their manifesto, they have to decide to what extent they amend the Business Rates system, which has massively evolved since the 40 years in which we have seen modern Business Rates.
It has been a hugely dependant tax for the Labour, Conservative and Liberal Democrat Governments, who have relied on this tax throughout the years.
Whilst it perhaps is now not quite fit for purpose in this digital world – the question has to be asked, do you simply remain with the status quo or do you completely reform and rewrite the legislation as a whole to create a seemingly fairer more modern tax?
For help and assistance for all Business Rates matters, please speak to our tax team to learn how RCK can help you.