How will changes to business rates affect you?
Recent uproar from businesses concerning the impending changes in business rates, taking effect from next month, has caused the Prime Minister to reconsider the nature of the changes and the effects they will have on the economy.
What are business rates?
Business rates are taxes paid on non-domestic premises used to operate your business. They are calculated by multiplying the standard set multiplier by rateable value. The amount you pay depends on the size and location of the property, however if your standard rate is below a certain number, you will be classified as a small business and will therefore pay less. Click here to find out how much you will owe with this estimation tool.
Depending on the nature of your business you may also be entitled to business rate relief.
How are they changing?
From 1st April 2017 the rateable value of premises will change to reflect the rise in house prices over the last 5 years, which in some areas such as London and the South East will see a huge increase. Research has suggested that over a third of businesses expect their bills to rise by more than £1,000 a year, whilst more than one fifth expect an increase of over 40%.
How will this affect me?
If your business premises have been affected by increasing demand and rising prices in your area, the likelihood is the amount you must pay will increase. If your premises’ value has fallen, you will be paying less. This could cause an inverse effect on businesses in other areas as opposed to more desirable locations – making it easier for them to profit and expand.
This has caused outrage among MPs who, upon realising the detrimental effects on the British economy this could cause, have called the change an “old-fashioned” and “out-of-date” law, arguing the losses to business through tax will be passed on in their processes through investment cuts and staff costs.
FSB: “Business rates threaten future growth”
A recent survey from the Federation of Small Businesses has shown that 7% of small businesses will be paying more in business rates than rent, with the amount paid in business rates the third highest cost after rent and staffing.
Further figures have revealed that, of the one in three small firms who expect rates to rise, more than half will fear a fall in profits and expect to increase prices and reduce investment to mitigate this. The knock-on effects will be, as you can probably imagine, a slowdown in business.
National Chairman of the FSB Mike Cherry has commented: “Profitability across the UK small business community is already falling. The costs of doing business for small firms are now at their highest levels since early 2014. The last thing we need is a business rates burden so heavy that it threatens the future growth prospects of our entrepreneurs.”
May: “There will be appropriate relief for those adversely affected”
After much backlash from the business community, stressing the adverse effects likely on the economy, the Prime Minister has confirmed the government will be making changes to mitigate these effects.
This intervention has been welcomed by the FSB, after they urged the government to compensate and reflect the losses of those businesses hit hard by the increase in the next Budget.
The FSB has called for the government to implement a higher relief threshold for small businesses operating in London, and a lower cap on increases for larger buildings. This will enable businesses to survive and prosper without paying extortionate tax.
The question for many is will the government take note of these recommendations? And if any are implemented, will it be enough for our small businesses to survive?
How will these new business rate changes affect you? Please tell us in the comments section below.