BUSINESS RATES INCREASE TO PROVIDE NEW YEAR SQUEEZE

What is happening?

As from 1 April 2017 business rates across the country will increase for the first time in nearly ten years after increases were postponed for two years. Rates have historically been linked to property prices and rents but increases have historically been capped at 12.5% year on year. This cap will be removed from 1 April allowing business rates to be significantly increased year on year in order for there to be a “catch up” to property price and rental increases which were suppressed by the previous cap.

Why is this an issue?

Analysis by the Valuation Office suggests that total rateable values in England will increase by an average of 10.6%. This sounds manageable on the face of it but this needs to be understood in the context of where property price rises have actually taken place and then applied to those businesses in that area.

The areas that will be most affected will be London and the South East which have seen significant property and rent rises over recent years.

The new caps in place which will hit businesses with medium and larger properties the hardest.

Over a five year period in a worst case scenario businesses with a medium property according to the rateable value could see rate increases of 250% over a five year period. For businesses with larger properties the news is even worse with worst case analysis suggesting that rate increases of 350% over five years could be experienced.

Keith Cooney, national head of business rates at property services firm Knight Frank, agrees stating “The government is risking a spate of corporate insolvencies by failing to significantly reduce business rate increases over the next two years.

A perfect storm brewing?

For many businesses, particularly those with multiple premises and with high numbers of staff (retail, care homes, leisure) there is somewhat of a perfect storm brewing.

The pending business rate increases come on top of wage increases under the National Living Wage scheme (increasing to £7.50 for over 25’s from April 2017) as well as increased costs for pension auto enrolment which will have recently been absorbed by larger employers.

This is combined within unprecedented times in the economy with the impact of Brexit yet to be fully understood but expected to give way to price rises as the weakening value of Sterling is felt.

What should businesses be doing?

Business owners should be ensuring that they are aware of what impact the business rates increases will have on their business and seek to ensure that they are prepared for increases which may continue over a number of years. It may be necessary for costs to be cut or for these increases to be passed on through price increases. Early professional advice should also be sought if required.

How can Quantuma help?

If you find your business in financial distress as a result of increased costs then it is always best to take early advice. Quantuma have significant experience in this area and will be able to provide a free no obligation initial consultation to provide various options.