Business Rates - Fair or Unfair

[MitchT]

singlecoil said:

Perhaps a little unfair to just blame the rates then.

Possibly, but it seemed like a shocking amount of money with no real justification. All the other expenses were justifiable. Had the business rates been at an amount that equated to what you get it would have been viable.

[singlecoil]

MitchT said:

singlecoil said:

Perhaps a little unfair to just blame the rates then.

Possibly, but it seemed like a shocking amount of money with no real justification. All the other expenses were justifiable. Had the business rates been at an amount that equated to what you get it would have been viable.

Still not getting it I'm afraid.

Let's take the example of a 750 sq ft (more than you would need) shop in Morley. Rent £11,500, rates payable approx £3,000. Add in the other costs, and the rates become a quite a small proportion of the overall cost. Annoying to have to pay them, as it is any other tax, but I just can't see it turning a viable business into an unviable one.

[chippy348]

singlecoil said:

That's right, it's a tax. Just like income tax and VAT it gives very little back in direct returns. I thought everybody knew it was a tax.

Vat you claim back so this is not a cost.

You have your view i have mine, in 25 years of being in business, starting from a start up unit as a sole trader to going LTD with 6 staff i see it differently to you. For me to keep more stock it is going to cost me more money in rates but the profit margin is the same whether i have 10 on the shelf or 20.

As others have said you earn more you pay more tax, i get that.

[jamoor]

singlecoil said:

If I was arguing on behalf of the government (which I am not, I don't think business rates are more or less 'unfair' than any other tax) I would say that it's the ideal tax. And the reason from the government's point of view is that buildings are not easily hidden. So they can be taxed.

If people are able to run businesses and make money without having premises then that's exactly what they should do. If they are able to manage in smaller premises that they would like, then that's what they should do too.

The main costs to any conventional business are stock and staff. Rates are some way down the list. As someone said earlier, if a business becomes unviable because of rates then it's unviable anyway.

This is old thinking

In today's globalised world taxing a firm into being unviable when your competitors abroad don't have this tax is a matter of poor government policy.

[singlecoil]

chippy348 said:

singlecoil said:

That's right, it's a tax. Just like income tax and VAT it gives very little back in direct returns. I thought everybody knew it was a tax.

Vat you claim back so this is not a cost.

A trader can reclaim input VAT, of course, but when you buy something for yourself you can't, so, just like income tax and business rates, it's a tax.

jamoor said:

This is old thinking

In today's globalised world taxing a firm into being unviable when your competitors abroad don't have this tax is a matter of poor government policy.

But my point is that business rates do not tax a firm into being unviable. Any business that has to close because of rates is going to have to close anyway. Rates are not that big a propoprtion of a business's costs.

[Prolex-UK]

Been working on this since October for a large london authority.

What has not been mentioned is the transitional relief scheme to phase the increases in over the next 3 years which in my authority comes to over £27 million.

Those that suffer the most are businesses getting the small business rate relief now whose new rateable value takes them out of SBRR completely so they go from paying nothing to a significant increase.

You can see what your bill will be by going to www.voa.gov.uk where they have the new charges and TR calculation.

If anyone needs any help I am please to try and help with the caveat that I am not a valuer but have some knowledge on the subject.

[chippy348]

singlecoil said:

chippy348 said:

singlecoil said:

That's right, it's a tax. Just like income tax and VAT it gives very little back in direct returns. I thought everybody knew it was a tax.

Vat you claim back so this is not a cost.

A trader can reclaim input VAT, of course, but when you buy something for yourself you can't, so, just like income tax and business rates, it's a tax.

Let's not muddy the water here, we are talking a cost of doing business.

OK as this is PH let's talk cars, My 2005 F430 costs £295 a year to tax where as a later car is £515 for the same car. Is that fair no. The same with business rates why do you have to pay more than your neighbor? the whole system is not fair or even logical.

For a business to grow it needs stability and they are changing the goalposts all the time. This is not like a rent review that you can negotiate, this is a constant changing cost that i have to say again you get very little in return.

The way you see it is if a business can not afford to lose £3k / £5K / £10k /£15k etc then they are not viable, it is not simply that black and white, well it is not in my world.

[singlecoil]

chippy348 said:

singlecoil said:

chippy348 said:

singlecoil said:

That's right, it's a tax. Just like income tax and VAT it gives very little back in direct returns. I thought everybody knew it was a tax.

Vat you claim back so this is not a cost.

A trader can reclaim input VAT, of course, but when you buy something for yourself you can't, so, just like income tax and business rates, it's a tax.

Let's not muddy the water here, we are talking a cost of doing business.

OK as this is PH let's talk cars, My 2005 F430 costs £295 a year to tax where as a later car is £515 for the same car. Is that fair no. The same with business rates why do you have to pay more than your neighbor? the whole system is not fair or even logical.

For a business to grow it needs stability and they are changing the goalposts all the time. This is not like a rent review that you can negotiate, this is a constant changing cost that i have to say again you get very little in return.

The way you see it is if a business can not afford to lose £3k / £5K / £10k /£15k etc then they are not viable, it is not simply that black and white, well it is not in my world.

Of course we are talking about the cost of doing business. But the example you quoted is not, it's part of a conversation about tax.

Feel free to provide a worked example of how a business that is viable without rates is not viable with. I have already shown that the rates are a small proportion of the overall costs. I daresay you don't like paying them, nor do I, but they are not going to put me or anyone else out of business unless the business is in deep trouble already.

[Chrisgr31]

Prolex-UK said:

If anyone needs any help I am please to try and help with the caveat that I am not a valuer but have some knowledge on the subject.

I am a valuer specialising in business rates so between us should do well.

Incidentally whilst business rates is a tax it is charged on property not profits, this gives it one big advantage over other business taxes. If wondering what ask your self how much corporation tax Starbucks paid or indeed Amazon, then ask your self how much business rates they paid.

[emicen]

Once we're done venting the hatred of business rates, gimme a shout and I'll kick off a water rates rant

[singlecoil]

fesuvious said:

singlecoil said:

chippy348 said:

singlecoil said:

That's right, it's a tax. Just like income tax and VAT it gives very little back in direct returns. I thought everybody knew it was a tax.

Vat you claim back so this is not a cost.

A trader can reclaim input VAT, of course, but when you buy something for yourself you can't, so, just like income tax and business rates, it's a tax.

jamoor said:

This is old thinking

In today's globalised world taxing a firm into being unviable when your competitors abroad don't have this tax is a matter of poor government policy.

But my point is that business rates do not tax a firm into being unviable. Any business that has to close because of rates is going to have to close anyway. Rates are not that big a propoprtion of a business's costs.

You are not wholly right.

I'm about to shut a business and, to be honest if the rates bill was only 1/4 of what it is I'd extend the lease.

This particular business can exist. Its current premise was perfect in 2004, not so now.

Rates now make up an amount equiv to half the rent. Or to put it another way the rates are equiv to 20% of its revenue.

The business could exist in zombie form (ticking over but sustainable) until a 'push' is made to improve. Wider company circumstances mean this is 2-3 years away.

Therefore, time to close it. The rent level is where it was 10 years ago. In that time the rates have increased by circa 6-8k.

For 2017 they want an additional £3500(ish).

Thats the tipping point.

Now they can have an empty building, one less job in the area, and a canny building owner who'll pay little of the rates.

Not wholly right in your somewhat unusual case I daresay, but in general, my position on this subject is correct.

Numerous worked examples are available on, for instance-

http://www.businessesforsale.com/

Here's one in particular which is a good illustration, and pertinent to this thread where somebody earlier mentioned he wanted to open a gallery

http://uk.businessesforsale.com/uk/art-gallery-in-...

[Leithen]

One of our bars in Scotland is seeing an increase from circa £26K to £43K per year, a 66% increase. Income has increased over the five year period by 40%.

A 26% increase, £17K isn't going to put us out of business. However, add it to the living wage increases, the myriad of zero waste related cost implications, Insurance hikes etc and it's a simple fact that one's fixed costs have risen inexorably over the last few years.

The tax element is partly frustrating because we are low hanging fruit, but mostly because the council is at best incompetent, and invents new ways of pissing money up against various walls every year.

As with many businesses that can't move, enlarge or fundamentally change due to being in older buildings that might be listed etc, it does put their future in jeopardy.

The answer of course is to expand elsewhere, diversify etc.

It also explains why there are so many Wetherspoons around...

[singlecoil]

fesuvious said:

Yes.

Fixed costs have, or certainly feel like they've been targeted.

I know what is going on, inflation is being forced. The logic is now that 'growth' and inflation can be forced from a stagnating economy.

Business rates however are an outdated tax. It no longer fits in the internet age.

Moreover, it also doesn't fit that just because a premise is bigger the company will be better able to pay. Certainly not nowadays.

I daresay the reasoning is that if the company can't afford the tax on their premises then they shouldn't be holding those premises. They should let them go and give someone else a chance (especially applies to the high street).

[NDA]

singlecoil said:

If you look at the books of any high street business, if the rates are enough to make one unprofitable then that's a business that's in serious trouble anyway.

In the quote from the OP, the business rates have increased by £100,000. That's a chunk of change for any small business to find.

As previously noted, it is causing the death of the high street, my local town is becoming stuffed with charity shops as a result with a linked rise in parking charges (less rateable properties) and the inevitable rise of internet shopping as there are fewer shops and higher parking charges.

[singlecoil]

NDA said:

singlecoil said:

If you look at the books of any high street business, if the rates are enough to make one unprofitable then that's a business that's in serious trouble anyway.

In the quote from the OP, the business rates have increased by £100,000. That's a chunk of change for any small business to find.

As previously noted, it is causing the death of the high street, my local town is becoming stuffed with charity shops as a result with a linked rise in parking charges (less rateable properties) and the inevitable rise of internet shopping as there are fewer shops and higher parking charges.

Wrong on both counts I'm afraid.

The hotel in question must be massive for those figures to be correct (they probably aren't).

And it's not the rates that are killing the high street, it's the fact that people aren't buying from the shops. A shop with good trade can easily afford the rates, as I have shown more than once in this thread. The advantage that charity shops have is not rates, it's the fact that their stock is FREE, and their staff are FREE.

[Leithen]

singlecoil said:

I daresay the reasoning is that if the company can't afford the tax on their premises then they shouldn't be holding those premises. They should let them go and give someone else a chance (especially applies to the high street).

The problem comes when there aren't any other businesses able to bring in enough revenue to satisfy the tax demands. Other government agencies and departments will happily restrict the ability to alter or change the premises structurally. Then you end up with the charity shop / empty premises nightmare that many rural towns a blighted with.

It's also fair to question the amount of tax certain types of building and businesses are liable for. Local government is rather good at spending money so there is always going to be pressure for business to pay more. The accountability for such expenditure is very indirect however from a businesses point of view.

IMHO the whole rating system, domestic and commercial is terribly out of date and needs to be revamped from the ground up. The last time that was attempted didn't go so well so politicians won't go near it.

[singlecoil]

Leithen said:

singlecoil said:

I daresay the reasoning is that if the company can't afford the tax on their premises then they shouldn't be holding those premises. They should let them go and give someone else a chance (especially applies to the high street).

The problem comes...

The post above yours covers those points mostly, all I need to add is that business rates go to central government, not the local council, and that although the council collects the rents they have very little control over them.

[Leithen]

singlecoil said:

The post above yours covers those points mostly, all I need to add is that business rates go to central government, not the local council, and that although the council collects the rents they have very little control over them.

As with all tax, there is an inflection point, above which less revenue is collected. The irony for us is that the bar in question that has hit by a seemingly arbitrary 26% increase is one that we lease rather than own the freehold. It's margins are tighter. Go figure. The system is broken and lacks the flexibility to help regenerate high streets and other areas where premises lie empty.

[singlecoil]

Leithen said:

singlecoil said:

The post above yours covers those points mostly, all I need to add is that business rates go to central government, not the local council, and that although the council collects the rents they have very little control over them.

As with all tax, there is an inflection point, above which less revenue is collected. The irony for us is that the bar in question that has hit by a seemingly arbitrary 26% increase is one that we lease rather than own the freehold. It's margins are tighter. Go figure. The system is broken and lacks the flexibility to help regenerate high streets and other areas where premises lie empty.

Earlier I posted an example of a reasonably successful high street business with figures which clearly demonstrate that business rates are not a problem to a healthy business.

The reason some high streets have empty shops is not rates, it's the fact that there is insufficient trade to be had there.

Just look at the figures for the gallery I linked to, and there are plenty of others on that site. Thousands in fact.

I don't like having to pay tax any more than anyone else does, and I can easily see why businesses object to paying rates, especially as they don't think they are getting anything back for them.

But I also don't like hearing people blame high street decline on rates because that not only wrong, but seriously misleading.

[Leithen]

singlecoil said:

But I also don't like hearing people blame high street decline on rates because that not only wrong, but seriously misleading.

Arbitrary increases such as these will tip the balance for some businesses.

Rates are one the few tools the government has to fight high street decline with. They need a much more sophisticated model to help regenerate such areas.