Business Rates - Fair or Unfair

[singlecoil]

Leithen said:

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.

Looked up the first business listed, just for a laugh, the one facing 160% increase.

Rates liability nil



It's all very well saying that people are being driven out of business by business rates, but as soon as the figures are looked at, it simply isn't true.

Feel provide all the pertinent figures of a business that is otherwise healthy but which has closed due to business rates if you don't agree.

[Leithen]

singlecoil said:

It's all very well saying that people are being driven out of business by business rates, but as soon as the figures are looked at, it simply isn't true.

Feel provide all the pertinent figures of a business that is otherwise healthy but which has closed due to business rates if you don't agree.

How have you discerned the "truth" regarding the cost base and profitability of such businesses? Are you an assessor or bank manager etc?

I can only relate my own experience which has been owning and operating bars of all sizes over the last 30 years. I've sold a lot of smaller ones that became unprofitable for our business model (management). Whilst these were profitable for single owners, margins were and are tight. Even tighter now. Any arbitrary increase to the cost base can be enough to close a business that might already be on the borderline of sustainability.

By all means have no sympathy. But many of us who pay such taxes will lament the lack of flexibility in the system and absence of justification for arbitrary increases.

[singlecoil]

Leithen said:

singlecoil said:

It's all very well saying that people are being driven out of business by business rates, but as soon as the figures are looked at, it simply isn't true.

Feel provide all the pertinent figures of a business that is otherwise healthy but which has closed due to business rates if you don't agree.

How have you discerned the "truth" regarding the cost base and profitability of such businesses? Are you an assessor or bank manager etc?

I can only relate my own experience which has been owning and operating bars of all sizes over the last 30 years. I've sold a lot of smaller ones that became unprofitable for our business model (management). Whilst these were profitable for single owners, margins were and are tight. Even tighter now. Any arbitrary increase to the cost base can be enough to close a business that might already be on the borderline of sustainability.

By all means have no sympathy. But many of us who pay such taxes will lament the lack of flexibility in the system and absence of justification for arbitrary increases.

I've been a retail shopkeeper in the past and will be again shortly. I have spent a great deal of time and effort looking for a business to buy, and have looked at the books of those that seemed suitable. The reasons for not deciding to proceed with the ones I rejected were varied, but the rates never even got close to being one of them.

Now I agree about the inflexibility that you speak of, and I can see why it annoys you. But I will never agree that rates are the sole reason for businesses closing until someone provides an example.

On this thread we have seen people blaming rates for the decline in high street shopping, sometimes they blame car parking policies, I expect some will blame both. But to do so diverts attention from the real reasons.

[NDA]

I was interested to note that the Director General of the British Retail Consortium recognises that rates have become overly onerous on retail - the higher the rates, the less likely people are to open new stores.

I have nothing to do with retail, however I've noticed my high street is changing and, I am told by those departing, that business rates are causing the squeeze, tipping the balance. The 80%+ relief that charity shops receive on rates means that we have an increasing number of these appearing in their stead.

[singlecoil]

NDA said:

I was interested to note that the Director General of the British Retail Consortium recognises that rates have become overly onerous on retail - the higher the rates, the less likely people are to open new stores.

I have nothing to do with retail, however I've noticed my high street is changing and, I am told by those departing, that business rates are causing the squeeze, tipping the balance. The 80%+ relief that charity shops receive on rates means that we have an increasing number of these appearing in their stead.

Proof by assertion, with some anecdotal evidence.

I've said repeatedly in this thread that it's not the rates regime that leads to charity shop proliferation, it's the fact that they don't pay for their stock or their staff. This is easily demonstrated if you look at the figures for an average retail business. The low rates are just a bonus.

Take a typical one-man shop trading below the £86K VAT threshold. Typical rent £13k. Typical rates £3k. Other costs such as insurance and electricity £5K. Let's say he runs an art gallery and buys his stock for half what he sells it for. For the turnover stated he will be paying out £43K on stock.

So, how much effect is £3K of rates having when he is paying out a total of £64K?

Now maybe his shop isn't doing so well, and the turnover goes right down. His fixed costs are still going to be £21K so again we can see that if he can't afford the £3k for the rates then he's in real trouble anyway, and it's poor trade that will make him close, not the rates.

[feef]

sideways sid said:

Business Rates probably seemed reasonable at inception, getting occupiers of premises to contribute to local infrastructure and services etc.

However it is totally inappropriate to the commercial landscape today for the government to force bricks and mortar occupiers to pay a fixed cost (in the region of half of what they pay in rent), when otherwise-identical online businesses do not pay.

Corporation Tax which should smooth this situation if online businesses make more profit than bricks and mortar, and hence pay more tax. IF they pay, which many high-profile ones do not, but that's another discussion.

What sort of successful online business doesn't need an office or a warehouse? We started out working from the spare room, but now occupy a reasonable sized warehouse and pay business rates on that despite being a predominately online business

[Chrisgr31]

The amount collected from business rates goes up Year on Year by the rate of inflation using RPI, it is due to change to CPI in a couple of years. In theory local councils keep 50% of the rates they collect and it is moving towards 100%. It's actually more complex than that because the City of London and the City of Westminster collect a huge proportion of the due rates where as some small authorities collect very little so there needs to be a distribution scheme.

The rateable value is meant to represent the rental value at the valuation date currently 1 April 2008 and will be 1 April 2015 from 1 April. The idea of revaluations is to cater for the changes in the property base and to reindeer everything. So changes in the retail market should be reflected by the revaluation.

The reality though is that many businesses do not understand the link between rent and rates, so will agree an increase in rent, and then be upset when their rates increase a couple of years later.

Hotels and pubs tend to be on a different basis usually that equate to percentage of turnover. Historically what has happened is pubs etc haven't provided their trade details to the VO who has guessed. If subsequently correct information is provided there can be a very big increase in RV. Pubs in particular wouldn't want the RV based on rents as some are extremely high!

[chippy348]

singlecoil said:

Proof by assertion, with some anecdotal evidence.

I've said repeatedly in this thread that it's not the rates regime that leads to charity shop proliferation, it's the fact that they don't pay for their stock or their staff. This is easily demonstrated if you look at the figures for an average retail business. The low rates are just a bonus.

Take a typical one-man shop trading below the £86K VAT threshold. Typical rent £13k. Typical rates £3k. Other costs such as insurance and electricity £5K. Let's say he runs an art gallery and buys his stock for half what he sells it for. For the turnover stated he will be paying out £43K on stock.

So, how much effect is £3K of rates having when he is paying out a total of £64K?

Now maybe his shop isn't doing so well, and the turnover goes right down. His fixed costs are still going to be £21K so again we can see that if he can't afford the £3k for the rates then he's in real trouble anyway, and it's poor trade that will make him close, not the rates.

The OP asked if business rates were fair and my answer is no i don't think they are fair.

Now we seem to be talking about business economics and your example above is not a viable business.

I think the point i and others are making is, there is a tipping point and rates have been increasing along with other costs at a certain point it can tip the balance.

[Wombat3]

Its a stupid system and fails to take account of all kinds of stuff whilst, at the same time producing some very arbitrary charges

Until April the small business relief system is 100% discount at a rateable value of £6K or under and 0% at £12K & over. i.e. its spread over £6K of rateable value.

From April those figures become £12K & £15K - so while on the one hand more businesses will get a discount, the system has become very, very sensitive to rateable value. The difference between no rates and full rates is now only £3K in RV.

Between £12 & £15K Every £500 of rateable value equates to a discount of 16% (on the entire bill). All well & good except that rateable values seem to vary enormously between seemingly similar if not identical properties. Its very easy for there to be this kind of difference (£500) between neighbouring units. I was recently told that the rate/sq metre used to calculate rateable value is itself a product of how much a given property has been occupied. i.e. if it has a history of being occupied less than the one next door then its rateable value is likely to be lower.

How in Christendom is that a fair way to tax businesses and the current occupants of seemingly identical properties??

At the margin, if you move from a property with an RV of say £12K to one with an RV of say £15K you are likely to be looking at a 25% increase in space near enough doubling your costs (of Rent + rates). There is no assistance with this in terms of allowing time for turnover to grow & for the business expansion to start to yield the money to pay the additional charges either. The system is an inhibitor to expansion (as has been pointed out)

The system takes no account of the fact that different kind of businesses can generate vastly different amounts of revenue & profit from a given amount of space. Some businesses just need more space to function, yet may make less money - but also possibly employ more people.

Its a stupid system.

[singlecoil]

chippy348 said:

singlecoil said:

Proof by assertion, with some anecdotal evidence.

I've said repeatedly in this thread that it's not the rates regime that leads to charity shop proliferation, it's the fact that they don't pay for their stock or their staff. This is easily demonstrated if you look at the figures for an average retail business. The low rates are just a bonus.

Take a typical one-man shop trading below the £86K VAT threshold. Typical rent £13k. Typical rates £3k. Other costs such as insurance and electricity £5K. Let's say he runs an art gallery and buys his stock for half what he sells it for. For the turnover stated he will be paying out £43K on stock.

So, how much effect is £3K of rates having when he is paying out a total of £64K?

Now maybe his shop isn't doing so well, and the turnover goes right down. His fixed costs are still going to be £21K so again we can see that if he can't afford the £3k for the rates then he's in real trouble anyway, and it's poor trade that will make him close, not the rates.

The OP asked if business rates were fair and my answer is no i don't think they are fair.

Now we seem to be talking about business economics and your example above is not a viable business.

I think the point i and others are making is, there is a tipping point and rates have been increasing along with other costs at a certain point it can tip the balance.

The point that several people have been making is that it's business rates that are destroying the high street. My point is that that is not true

BTW, I gave what was in effect two examples above. One viable and one not. In neither case does the rates play a major part.

[Chrisgr31]

Wombat3 said:

I was recently told that the rate/sq metre used to calculate rateable value is itself a product of how much a given property has been occupied. i.e. if it has a history of being occupied less than the one next door then its rateable value is likely to be lower.

How in Christendom is that a fair way to tax businesses and the current occupants of seemingly identical properties??

You have quite simply been told incorrectly. There may be a difference in value if the use is different ie a first floor used for retail not storage although in my view there should be no difference unless modifications have been made. Quite simply two identical properties adjacent to each other should have the same RV

said:

At the margin, if you move from a property with an RV of say £12K to one with an RV of say £15K you are likely to be looking at a 25% increase in space near enough doubling your costs (of Rent + rates). There is no assistance with this in terms of allowing time for turnover to grow & for the business expansion to start to yield the money to pay the additional charges either. The system is an inhibitor to expansion (as has been pointed out)

The same issue affects properties on the edge of transition bandings, but on a much larger scale. There is no easy solution to it, and the more complicated you make it with reliefs exemptions etc the more issues that arise.

said:

The system takes no account of the fact that different kind of businesses can generate vastly different amounts of revenue & profit from a given amount of space. Some businesses just need more space to function, yet may make less money - but also possibly employ more people.

Its a stupid system.

The RV is based on rents, and rents make no account of the facts that different types of business make different amounts of money. Its traditionally been a problem on the High Street where a type of retail with high margins agrees a high rent as they can afford it therefore driving up rents for everyone else. Then a few years later the rates go up. In the meantime of course the orignally retailer who caused all this has probably gone bust.

The best thing businesses could do is share information on rents etc to ensure they are as low as possible, that also keeps rates low. However usually business people like to think they have the lowest rent, or are told by the landlord its a good deal and confidential. Often its only good for the landlord!

Edited by Chrisgr31 on Monday 30th January 23:32

Edited by Chrisgr31 on Monday 30th January 23:33

[Wombat3]

Chrisgr31 said:

Wombat3 said:

I was recently told that the rate/sq metre used to calculate rateable value is itself a product of how much a given property has been occupied. i.e. if it has a history of being occupied less than the one next door then its rateable value is likely to be lower.

How in Christendom is that a fair way to tax businesses and the current occupants of seemingly identical properties??

You have quite simply been told incorrectly. There may be a difference in value if the use is different ie a first floor used for retail not storage although in my view there should be no difference unless modifications have been made. Quite simply two identical properties adjacent to each other should have the same RV

And therein lies the point, similar units should have the same RV, in reality they don't. On the estate on which my premises is located "warehouse space" varies betweern £108/sq M and £135 per Sq M. The units vary in size but fundamentally they are all basically the same.

As I said, for those businesses with RV's £12-£15k, + or - £500 on the RV will make a difference of 16% discount (or not). The discount scheme is much too sensitive to RV which in itself appear to be very inconsistent.

I've never heard a good word said about business rates (which is usually a sign of a fundamentally bad tax).

[wisbech]

Why do we have this obsession with "saving the high street"? With out of town shopping, internet shopping no reason much of the high streets can't become housing again. It's happened to a lot of pubs already.

[Keep it stiff]

Wombat3 said:

I've never heard a good word said about business rates (which is usually a sign of a fundamentally bad tax).

I have a good word to say about Non Domestic Rates, well several actually. It is transparent, it is easy to budget some way ahead and the VO and Local Authorities have vastly improved their processes.

[singlecoil]

Keep it stiff said:

Wombat3 said:

I've never heard a good word said about business rates (which is usually a sign of a fundamentally bad tax).

I have a good word to say about Non Domestic Rates, well several actually. It is transparent, it is easy to budget some way ahead and the VO and Local Authorities have vastly improved their processes.

I wonder which taxes Wombat thinks are fundamentally good.

[Wombat3]

singlecoil said:

Keep it stiff said:

Wombat3 said:

I've never heard a good word said about business rates (which is usually a sign of a fundamentally bad tax).

I have a good word to say about Non Domestic Rates, well several actually. It is transparent, it is easy to budget some way ahead and the VO and Local Authorities have vastly improved their processes.

I wonder which taxes Wombat thinks are fundamentally good.

Nobody likes paying tax but if you accept the principle that its necessary to fund government and society in general, then there are many that work better than business rates - starting with income & corporation tax (even if both of those are also flawed to some extent).

Business rates is not an issue for very small companies working out of a shed, they don't pay it. For successful companies making good money they probably don't have too much of an impact either but, for companies needing anything more than about 1200 square feet they can be painful when you are trying to grow a business from scratch and, as above, there is too much inconsistency in the scheme.

Edited by Wombat3 on Tuesday 31st January 08:58

[russy01]

I dont want to get involved properly, but I am getting very annoyed by everybody in this thread blaming the failures of the high street on rates! So I am going to have a self contained rant about that....

Whilst rate increases dont help any business make more money (or stay afloat in some cases), there is a lot more to why the High Street is suffering. The main and most important point being buyer trends and the rise of technology and the digital age - especially mobile....

You could zero High Street rates, you could put a free car park at the end of every street and even run a free shuttle bus to shops - BUT still the problem wouldn't go away. Whilst some shops will always survive such turmoil (because of their product selection and/or experience they offer instore) the vast majority selling standard crap will suffer as buyers decide to buy conveniently online and spend their free time doing something else...

So, failure of shops is most often related to business owners (small and large) simply not embracing and reacting to (quick enough) the changes that are happening before us. Lets also not forget that a lot of these high street retailers havent had any competition for decades, many have spent decades making good money and have become complacent - they need to evolve their businesses quickly and if they dont they will fade out or be replaced... Also whilst I dont know how it works in every industry, our industry heavily supports the High Street via punishment of online retailers (typically through skewed pricing structures.)

We dont run a shop at the moment, we are purely online. BUT we are actually in the motions of opening a very large store to sit alongside our internet business - we have identified that a mix of the two would work well in our area and we will invest heavily in this to secure our future (Nothing stopping failing independent High Street retailers doing the opposite..)
I hear far too many business owners simply complaining about parking rates, business rates, reduced footfall - you name it! Whilst all of these are valid points and are not helping, they are simply hurdles they need to beat and if they cant they have to look at reinventing THEIR businesses to meet the needs of their customers...

Sorry, rant over.

[singlecoil]

Wombat3 said:

singlecoil said:

Keep it stiff said:

Wombat3 said:

I've never heard a good word said about business rates (which is usually a sign of a fundamentally bad tax).

I have a good word to say about Non Domestic Rates, well several actually. It is transparent, it is easy to budget some way ahead and the VO and Local Authorities have vastly improved their processes.

I wonder which taxes Wombat thinks are fundamentally good.

Nobody likes paying tax but if you accept the principle that its necessary to fund government and society in general, then there are many that work better than business rates - starting with income & corporation tax (even if both of those are also flawed to some extent).

Business rates is not an issue for very small companies working out of a shed, they don't pay it. For successful companies making good money they probably don't have too much of an impact either but, for companies needing anything more than about 1200 square feet they can be painful when you are trying to grow a business from scratch and, as above, there is too much inconsistency in the scheme.

None of which makes it a fundamentally bad tax. I daresay there will be instances where it seems unfair or onerous, but those instances are not enough to make it a bad tax put against the way it is almost impossible for companies to avoid paying it by clever accounting.

[Leithen]

russy01 said:

I dont want to get involved properly, but I am getting very annoyed by everybody in this thread blaming the failures of the high street on rates! So I am going to have a self contained rant about that....

........

Sorry, rant over.

Excellent rant!

I don't think anyone is under the illusion that High Streets can somehow be taken back in time and made to thrive on anything like the business model that previously sustained them. The point is that the rating or tax system needs to understand this too.

It was mentioned earlier that High Street property should be returned to accommodation - in most cases it probably never was, so instead a new "use" or model needs to be found for areas of towns and villages that are quite frankly decaying.

Socially a great deal has been lost by the move to out of town shopping centres and online purchasing. High Streets used to be a hub where people met and interacted.

I have two examples nearby where I live. Interestingly, the smaller of the towns with a population of circa 2000 has seen fewer empty shops and loss of community than the larger town with a population of circa 8000.

The larger town has some interesting shops, but many empty properties and many smaller traders have tried and failed. It's lost the ability to attract and hold people into it's centre. It's a fascinating mix of quite an attractive place to live, with very little in the way of a social heart.

Perhaps that is the way of things now. But I'd also argue that central and local government can influence change too. Control of taxation and grants can be used to encourage retailers, hoteliers, restauranters, publicans etc to invest. Councils need to give towns of this size much more say over their own future - give them the rope - they might hang themselves, but equally given the incentive locals might work a lot harder for a good outcome.

It's very sad to see places like this become somewhere people shut themselves away in houses and don't come together more.

[jamoor]

wisbech said:

Why do we have this obsession with "saving the high street"? With out of town shopping, internet shopping no reason much of the high streets can't become housing again. It's happened to a lot of pubs already.

This is actually a very valid point.
It's a dated business model,why do we want to save it to the point of obsession