How will the business rate changes affect small retailers?

 In Small Businesses & Startups

This April, business rate changes are coming into effect. This will drastically affect small retailers in the South East, as their rates will soar sky-high. Those in more rural areas may fare better, but there is no doubt that larger Internet corporations will be the ones who profit most from these changes.

What are the business rate changes?

This is the first change in business rates since 2010. In most cases, they are going up, but there is confusion as to how much. The Government predicts 1% and Gerald Eve predicts 6%.

The cause of this rise is pretty straightforward. Current business rates are calculated on the 2008 ‘rateable value’ of the property. From April 2016, 1.9m British properties will be revaluated, and business rates will be based on the 2015 rental value of that property.

Since 2008, we have recovered from the recession, so property prices have increased dramatically. This is likely to result in an increased rateable value for many properties.

business rates changes

*Graph courtesy of the Telegraph

The rise of annual rates has been capped at 42%, but this is significantly higher than the 12.5% cap during the last revaluation in 2008. (The revaluation usually takes place every five years, but was suspended so as not to detract from the general election).

How will these business rate changes affect small retailers?

Small businesses that occupy premises with a rateable value of under £15,000 are exempt from business rates, as long as the property is their sole premises. However, the majority of British companies which have properties with a rateable value of more than £15,000, or who occupy more than one property, will face a drastic increase in business rate bills.

Some areas in the capital and south east will face a 400% increase over the next five years. However, in regional towns where high street rents have slumped, business rates may fall.

Online retailers will be able to avoid steep business rates because they can locate stores in rural areas. This furthers the imbalance between physical and virtual stores.

Calls are being made to lessen the pressure on small businesses who may not be able to accommodate this rise in fees. You have to pay business rates before you’ve sold a single product or service. This could be debilitating for many small retailers.

The Chancellor, Phillip Hammond, warned that these significant rises will “whack” the confidence of small firms. He has also stated he is aware of the impact these changes will have on some high street shops.

Because of this, he has introduced several measures to mitigate the effects of these changes, within his March 2017 budget. These include:

  • 90% of pubs in England will receive a discounted rate
  • Small firms set to lose their rate relief will see increases capped at £50 a month
  • Local councils will have access to a £300m fund to offer discretionary relief to the worst-hit firms

While this is a solution in the short term, many experts are still calling for reform of this system.

In the meantime, small retailers must accept the business rate changes or appeal to the Valuation Tribunal for England (VTE). Either way, they must make sure they are able to pay these rates come April, when the changes are put in place.

Call on 3 Wise Bears for more expert small business accounting advice.

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