In times of economic uncertainty, there are two key requirements of a taxation system: to reduce or preferably eliminate taxes for business or individuals and to provide certainty. 

The Government’s response to the international pandemic in terms of Business Rates has so far addressed both of these points, but this will never be enough for many. Struggling retailers who have been exempt from paying Business Rates this year want this relief to be long term, whereas other sectors that haven’t benefited from this relief (and are unlikely to as the strain on the Treasury increases), such as offices and industrial, want to know what to budget for in the future.

Having postponed next April’s 2021 Rating List on the basis that it would create too much uncertainty for businesses, the Government has just announced a new Rating List from 1 April 2023, which will be based on the rental market as at 1 April 2021. It has also issued a consultation paper concerning the future of Business Rates following calls for it reform, or in some cases its abandonment. 

Inevitably, there are pros and cons with this new approach, but on the whole, it is positive news. The valuation date of 1 April 2021 will hopefully be post Covid-19, so it should capture the market changes that have been accelerated by this period of restriction and social distancing. In addition, those sectors that would have seen higher rates bills from the 2021 Revaluation will benefit from continued lower rates liabilities for a further two years.

However, it is unclear if there will be sufficient rental evidence by 1 April 2021 on which the Valuation Office Agency (VOA) can base its new valuations. Furthermore, if the markets are still settling, there will be a heavy reliance upon a cumbersome and inaccessible appeal system. The delay could also penalise sectors that would have benefited from the 2021 Revaluation as the rates bills will be based upon a very different market as at 1 April 2015 (on which current rateable values are calculated). 

There have been many calls for the overhaul or abolition of Business Rates, many saying it should be replaced with an online sales tax, but this could never fill the gap. Critics of the system must come up with ideas of how to reform or replace Business Rates, but if each sector is only thinking of themselves, there will always be disagreement. 

If an online sales tax could reduce the annual multiplier by 30 per cent, for example, this would bring the annual rate poundage down to 1990’s levels which would benefit all parties, help accelerate economic recovery and make the UK more investable again. However, an online sales tax has to be internationally co-ordinated, so the practicalities and the amount of revenue that could be generated are difficult to predict.

This consultation paper is an opportunity that all players in the system really must take advantage of. The concept of linking a property tax to rental values is still valid, but needs to be brought into the 21st century without making it more unmanageable by local billing authorities or unnavigable by ratepayers. 

More than ever, the VOA needs to be better funded, better resourced and made more accountable, avoiding litigation situations that result in lengthy resolution disputes, that have long-lasting consequences for both tax payers and tax collectors.

Further information

Contact Savills Business Rates team