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Are business rates becoming too much of a barrier?

Few taxes are welcomed by those who pay them but business rates are a particularly unloved tax. Despite recent government reforms, many firms find the burden of business rates unacceptable.

Thus, according to the British Retail Consortium: “The business rates burden for retailers large and small, online and physical, needs to be reduced. As part of the government’s goal to maintain a competitive tax environment for business, further measures to reform business rates are needed to fix an unsustainable system that continues to discourage investment in jobs and growth.”

Business rates have become a barrier to entrepreneurship, investment and productivity growth for businesses of all sizes and need urgent reform
The CBI

Business rates were thus the subject of Reed Specialist Recruitment’s Big Question this month. How big an issue are business rates for firms? And is there strong backing for reform? Respondents, of whom there were nearly 700, were given three choices. Of the three, interestingly, the most popular answer, favoured by nearly 41% of firms, was to say that business rates were not a particular problem for their business.

That, however, was not reflected in the second most popular answer, from 36% of the sample, which agreed that business rates were an outdated and inefficient tax which should be scrapped and replaced by a fairer method of taxation. Finally, 23% of respondents were prepared to give the government the benefit of the doubt, agreeing that the system was not perfect but the government was working to improve it.

Those who favoured far-reaching reform included Philip Dawes, finance director of Carbosynth. “The main issue with business rates is that they are intrinsically linked to property prices, regardless of whether that is through outright purchase or leasing/rental,” he said. “Given that the underlying property prices are escalating hugely, especially in ‘prosperous’ regions, this places a huge burden upon businesses, regardless of type.” Dawes favours a shift to what he describes as “a performance-based tax” to “ease the pressure on bricks and mortar businesses, especially during what is a fairly fundamental shift in, primarily, the retail marketplace.” 

Robin Redmile-Gordon, chairman of Thermeon Worldwide, also thinks business rates should be replaced. As he put it: "The only sane solution is to obtain the funds through general taxation (Corporation and Income Tax) and issue funds to the local authorities through an effective system of grants – as we already do - but I’m sure that mechanism could be improved. In this way you’d find businesses setting up shop in places that might otherwise not be viable, due to the inappropriate valuations of business rates. That improves town centres, encourages business development, increases local employment and prosperity, adds to the total tax-take from salaries and VAT. It’s really not difficult.”

Paul Attridge, tax senior manager at Beavis Morgan, contrasted aggressive reductions in corporation tax with the continuing burden of business rates. “Businesses have a wide range of taxes that are relevant to the profits they receive and the success that they enjoy,” he pointed out.

A tax based on the value of the property from which they trade would seem unfair and out of step with modern progressive taxation. Steps are being taken to reduce the rate of corporation tax to 17%, down, not that long ago from 30% for larger companies.
Paul Attridge, Tax Senior Manager, Beavis Morgan

“While this makes the UK more competitive, larger companies are profiting and smaller businesses are now losing out which is compounded with rises to business rates. Maybe we should be looking at halting the drop in Corporation Tax or maybe installing a ‘local’ corporation tax that can fund local public services and be related to profits not property. Small independent businesses should still be supported as the lifeblood of our economy and our communities.”

One thing is clear. There is a widespread perception that business rates are unfair and a groundswell of support for reform. Whether the government has the appetite or the time for reform is, of course, another question.

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