Business Rates - Fair or Unfair

[russy01]

Leithen said:

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.

It depends what circles you are in I suppose. In mine there is a massive urge to protect BAM, however its generally an old industry run by old people who in a lot of cases dont fully understand the internet and its power. So, instead of looking to help BAM grow into other channels and expand their businesses they simply look to restrict and penalise online as if its going to just disappear someday....

As you say it also depends on where you are in the country too, we're in a fairly affluent rural area littered with small towns and villages...the very small towns and villages have not been massively affected as they have good support from local communities and they sell less generic goods... the larger towns did get very bare but are now being littered with more Cafes and Art Galleries, it will be interesting to see how they survive...

Anyway - enough of that. Lets back to Rates....

[singlecoil]

Leithen said:

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...

Not really. The tax, has has been mentioned more than once already, is based on the property value, more specifically the rental value.

It's rent that need to take account if the new conditions, taxes will follow. Anything else is putting the cart before the horse.

[Leithen]

singlecoil said:

Not really. The tax, has has been mentioned more than once already, is based on the property value, more specifically the rental value.

It's rent that need to take account if the new conditions, taxes will follow. Anything else is putting the cart before the horse.

But is basing Business Rates on rent the best way of levying tax in businesses to pay for services?

One of the issues the local town I referred to in earlier posts suffers from, if local opinion is to be believed, is that the owners of many empty properties have set unrealistic rents, and hence the properties remain empty. If that's true it would suggest an inelasticity in rental values that will only compound the unattractiveness of them with tax being linked.

[singlecoil]

Leithen said:

singlecoil said:

Not really. The tax, has has been mentioned more than once already, is based on the property value, more specifically the rental value.

It's rent that need to take account if the new conditions, taxes will follow. Anything else is putting the cart before the horse.

But is basing Business Rates on rent the best way of levying tax in businesses to pay for services?

One of the issues the local town I referred to in earlier posts suffers from, if local opinion is to be believed, is that the owners of many empty properties have set unrealistic rents, and hence the properties remain empty. If that's true it would suggest an inelasticity in rental values that will only compound the unattractiveness of them with tax being linked.

The purpose of business rates is not specifically to pay for services, it's really just a tax. Based on the idea that if a business can afford the rent on premises then it can afford to pay tax on them. One might say just the same about a bottle of whisky or a cordless drill.

It hardly matters to businesses if the rents are inelastic because they will only have to pay rent and rates on the properties they choose to rent, knowing the costs beforehand.

When I asked on this forum why rents remained so high despite empty shops the consensus was that the landlords did not want, for accounting reasons, to devalue their property portfolios.

[Leithen]

There has been a Business Rates Review that was meant to have reported it's findings by Budget 2016. Can't seem to find the findings however.

In Scotland The Barclay Review of Business Rates has been set up to do something similar.

[Leithen]

singlecoil said:

It hardly matters to businesses if the rents are inelastic because they will only have to pay rent and rates on the properties they choose to rent, knowing the costs beforehand.

When I asked on this forum why rents remained so high despite empty shops the consensus was that the landlords did not want, for accounting reasons, to devalue their property portfolios.

It matters to those who would like to see thriving towns with local employment I suppose.

Interesting that Germany uses Market Value as a basis rather than Rent.

[singlecoil]

Leithen said:

singlecoil said:

It hardly matters to businesses if the rents are inelastic because they will only have to pay rent and rates on the properties they choose to rent, knowing the costs beforehand.

When I asked on this forum why rents remained so high despite empty shops the consensus was that the landlords did not want, for accounting reasons, to devalue their property portfolios.

It matters to those who would like to see thriving towns with local employment I suppose.

Interesting that Germany uses Market Value as a basis rather than Rent.

I didn't mean that I was happy with the current situation in some towns, but lowering rents (rates will follow) won't necessarily help, the reasons why the shops shut in the first place was that there was insufficient trade. There are many other costs apart from the aforementioned.

Market value - rents, not a lot of difference there.

[Chrisgr31]

Leithen said:

There has been a Business Rates Review that was meant to have reported it's findings by Budget 2016. Can't seem to find the findings however.

Summary of responses are here I think https://www.gov.uk/government/uploads/system/uploa...

The broad outcome was that the current system was preferred although it needed to be more reactive so more frequent revaluations should occur and more certainty on valuations.

There are rumours that the next budget will introduce self-assessment so businesses will determine their own rateable value.

[fridaypassion]

A business been on the high street or industrial estate is irrelevant its a completely stupid tax that holds business back and destroys opportunity for people.

Now we are fortunate in that the current rates review has knocked our rates from £3500 to under £1000 per year and we are appealing with a decent chance of getting them knocked in the head all together.

However if rates were not an issue we would have grown more quickly and taken on more staff and sooner. We have grown in spite of the Government in this case not with the assistance of the Government which is how it should be.

[singlecoil]

fridaypassion said:

A business been on the high street or industrial estate is irrelevant its a completely stupid tax that holds business back and destroys opportunity for people.

Now we are fortunate in that the current rates review has knocked our rates from £3500 to under £1000 per year and we are appealing with a decent chance of getting them knocked in the head all together.

However if rates were not an issue we would have grown more quickly and taken on more staff and sooner. We have grown in spite of the Government in this case not with the assistance of the Government which is how it should be.

Presumably your business works on very tight margins? I'm thinking even the cheapest employee would cost something like six times as much as that rates bill?

[jamoor]

singlecoil said:

Presumably your business works on very tight margins? I'm thinking even the cheapest employee would cost something like six times as much as that rates bill?

Well £3500 can be an investment into IT for example.

[fridaypassion]

singlecoil said:

Presumably your business works on very tight margins? I'm thinking even the cheapest employee would cost something like six times as much as that rates bill?

No but when you are trying to grow you look at your fixed costs and put decisions like hiring off because of these costs. Evidently you arent in business.

[singlecoil]

fridaypassion said:

singlecoil said:

Presumably your business works on very tight margins? I'm thinking even the cheapest employee would cost something like six times as much as that rates bill?

No but when you are trying to grow you look at your fixed costs and put decisions like hiring off because of these costs. Evidently you arent in business.

Oh I am indeed in business, that's why I don't understand your decision not to employ somebody at a likely cost of over £20K pa because of a rates bill of £3.5K. The whole point of employing people is for them to earn money for the business, more money than you pay them. The extra profit would help to pay that fixed cost that you are going to have to pay anyway (although I'm glad to see your rates have been reduced now), and all the other fixed costs.

But even if they were staying the same or going up you would still be well advised to take on the employee if you had enough work for them.

[Chrisgr31]

fridaypassion said:

No but when you are trying to grow you look at your fixed costs and put decisions like hiring off because of these costs. Evidently you arent in business.

If you and others werent paying business rates the government would have to raise the 26 billion it raises from somewhere else, so how are you proposing it should be raised? Preferably as efficiently which will be difficult as the business rates are a very efficient tax.

[Leithen]

Chrisgr31 said:

If you and others werent paying business rates the government would have to raise the 26 billion it raises from somewhere else, so how are you proposing it should be raised? Preferably as efficiently which will be difficult as the business rates are a very efficient tax.

If reduced rates encourages businesses to occupy, invest, employ and sell, then additional PAYE, NI and VAT may well bring in more revenue for the exchequer. I'd go further and encourage greater grant availability or other tax holidays for small businesses starting out.

[fridaypassion]

singlecoil said:

Oh I am indeed in business, that's why I don't understand your decision not to employ somebody at a likely cost of over £20K pa because of a rates bill of £3.5K. The whole point of employing people is for them to earn money for the business, more money than you pay them. The extra profit would help to pay that fixed cost that you are going to have to pay anyway (although I'm glad to see your rates have been reduced now), and all the other fixed costs.

But even if they were staying the same or going up you would still be well advised to take on the employee if you had enough work for them.

3.5k is only my rates and it's not my personal situation I'm lamenting we have a pretty good unit that's low on rates (5000 sqft) however a lot of similar units in size in our area attract £10000 £15000 or more in rates. We had the chance of a unit a couple of years ago. I was on my own in a 1000 ft unit with exemption and the unit next door was 3000 ft but had rates of £12000 per year so at that embryonic stage it's almost impossible. In the end the tactic we used was to have 2 units with exemptions and that's how we initially grew. We were then just fortunate to find our current place but it's almost unique in our area to have these type of low rates.

[fridaypassion]

Chrisgr31 said:

If you and others werent paying business rates the government would have to raise the 26 billion it raises from somewhere else, so how are you proposing it should be raised? Preferably as efficiently which will be difficult as the business rates are a very efficient tax.

Fixed income tax rate regardless of income. Very simple system but unfortunately it would put too many accountants out of business. They do it in Estonia and it works very well with very low evasion rates. Nobody can argue it's not fair. 18% is the rate they use. At the moment most people's effective rare is around 20% but if you are running a company and doing well you pay 10%

[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!

[singlecoil]

fridaypassion said:

singlecoil said:

Oh I am indeed in business, that's why I don't understand your decision not to employ somebody at a likely cost of over £20K pa because of a rates bill of £3.5K. The whole point of employing people is for them to earn money for the business, more money than you pay them. The extra profit would help to pay that fixed cost that you are going to have to pay anyway (although I'm glad to see your rates have been reduced now), and all the other fixed costs.

But even if they were staying the same or going up you would still be well advised to take on the employee if you had enough work for them.

3.5k is only my rates and it's not my personal situation I'm lamenting we have a pretty good unit that's low on rates (5000 sqft) however a lot of similar units in size in our area attract £10000 £15000 or more in rates. We had the chance of a unit a couple of years ago. I was on my own in a 1000 ft unit with exemption and the unit next door was 3000 ft but had rates of £12000 per year so at that embryonic stage it's almost impossible. In the end the tactic we used was to have 2 units with exemptions and that's how we initially grew. We were then just fortunate to find our current place but it's almost unique in our area to have these type of low rates.

Thanks for the extra info. It doesn't answer my point, not that you need to if you don't want to. But it gives me the opportunity to repeat that the only reason for not hiring staff is that you don't have enough work for them, not rates.

I had a look at where your unit is and I can see why your rates bill is low. Fortunately it doesn't matter with your specialist business, but a normal garage would want to be a lot more visible and they would need to pay more rent (and therefore rates) to achieve that.

[singlecoil]

Leithen said:

Chrisgr31 said:

If you and others werent paying business rates the government would have to raise the 26 billion it raises from somewhere else, so how are you proposing it should be raised? Preferably as efficiently which will be difficult as the business rates are a very efficient tax.

If reduced rates encourages businesses to occupy, invest, employ and sell, then additional PAYE, NI and VAT may well bring in more revenue for the exchequer. I'd go further and encourage greater grant availability or other tax holidays for small businesses starting out.

Who says reduced rates would do that? It rents that need to be reduced, rates will follow.