Taxation is at the forefront of our minds now more than ever. Brexit, Covid-19, the cost-of-living crisis, high inflation and increasing interest rates are proving challenging, leaving politicians with the headache of how to raise revenue, while everyone else wants to see tax cuts.
The Conservative Party leadership race has included various proposals from the candidates to reduce income tax or corporation tax, but cutting business rates has not featured highly.
Tax on property is one of the oldest forms of taxation in the UK, predating income tax by more than 200 years. Its journey to the modern form of business rates has been turbulent with frequent calls for its abolition over the last four centuries.
The truth is, however, the Government can’t afford to abolish it.
Income tax and corporation tax are quite responsive – a reduction in earnings will lead to a reduction in the amount of both taxes collected. Business rates provide the Government with certainty of income. ‘Regular’ business rates revaluations attempt to ‘re-gear’ the burden around the regions and within different sectors, but regardless of how the burden is distributed, the only certainty is that the amount of tax collected remains the same. This goes some way to explain why there has been little commitment to improving the system.
Infrequent revaluations are where the dangers lie for individual ratepayers. Over the past few years, we’ve seen a dramatic decline in retail rental values on the high street, compared with a healthy increase in rental values for warehouses as the popularity of online shopping increases. The 2023 revaluation will address this, reducing rateable values for shops and increasing them for warehouses overall.
The 2023 revaluation cannot come soon enough for some businesses, but it could be quite a shock for others, particularly if they’re unaware of what’s on the horizon.
This will be the first revaluation for six years, which just isn’t frequent enough. More regular revaluations are crucial, so the fact that the current Government has committed to three-yearly revaluations from 2023 onwards is positive, but these will still have a two-year lag in England and Wales between the date of valuation and the date the new rateable values ‘go live’ (but only a one-year lag in Scotland).
Next year’s new rateable values will be based upon the notional rental market as at 1 April 2021. In times such as these, markets change rapidly and whatever these new rateable values will be, they’re arguably already out of date.
The Valuation Office Agency (VOA) has a huge task to produce these valuations efficiently and accurately, but a lack of investment means that the accuracy of the valuations is not always what it should be, hence the right to appeal. Yet this right to appeal is gradually diminishing and a missed deadline here or misinterpretation there can lead to a complete loss of a business’s right to rectify an error for three years.
Investment is needed into business rates system to support the VOA and local authorities to produce a system which will serve businesses well. But that investment can’t happen in a climate of tax cuts, so failings and criticisms of the system will continue for years to come.
The prospect of wholesale business rates cuts look less likely than ever.
Further information
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