Lawbite: Business Rates – Transformation or Tinkering?

Business rates remain a controversial tax. In its manifesto, the government pledged to replace the business rates system so as to be able to raise the same revenue in a ‘fairer way’. The recently published Transforming Business Rates: Interim Report sets out what progress they feel they have made in that regards and where the focus is for further change.

The development will be of interest to ratepayers and occupiers of land and property in England and Wales.

Proposals for change

Following on from its discussion paper in Autumn 2024, the government has published Transforming Business Rates: Interim Report. In it the government emphasises it desire to remove barriers to investment, support high streets and boost economic growth. How far though have they come?

At the Autum Budget 2024, the Chancellor announced new permanently lower tax rates for retail, hospitality and leisure (RHL) properties with a rateable value below £500,000. These new rates are to apply from April 2026. The flip side is that all properties with a rateable value of £500,000 and above will face a new higher tax rate as of April 2026.

What the new lower and higher rates will be set at is to be announced at the Autum Budget 2025 (currently due to take place on 26 November). Predictably, opinions on this change are polarised between the winners and the losers. There has been a cautious welcome to the support that this will offer smaller RHL properties but the British Retail Consortium warns that the additional tax burden could force the closure of up to 400 large stores, whilst supermarkets warn that this is likely to be a further inflationary pressure on food prices.

Priority areas

The Interim Report sets out the following as amongst the ‘priority areas’ for further consideration:

• ‘Slab’ and ‘slice’ reform, moving away from the current system where higher rates apply or reliefs are withdrawn at a ‘cliff edge’, to a smoothed system where successive bands are taxed at increasing rates.
• Enhancing Small Business Rates Relief, which currently applies to properties with a rateable value of £15,000 or below and is generally not available for ratepayers that occupy more than one property, so as to perhaps enhance the threshold and remove the single property condition.
• Enhancing Improvement Relief which currently offers 12 months’ relief for certain improvement works. There is currently a reported ‘lack of take up and awareness’ of this relief. The Interim Report indicates that more data is required in order to consider how this relief can be enhanced.
• Exploring the possible benefits of shortening the 2 year time frame between the valuation date and the date that each new rating list comes into force. There has been criticism for some time that this 2 year time lag is too long and often means that a rating list is already outdated when it comes into being.

Where does this leave us?

• Whilst the continued focus on the business rates system is to be welcomed, there is criticism that the Interim Report does little more than identify and acknowledge concerns with the current system that have been talked about for a long time. It is positive that priority areas have been identified but there is little by way of substance in this report as to what will be done. Based on the Interim Report it does feel that whatever is done, it will likely amount to little more than tinkering with the existing system as opposed to any significant reform.
• For ratepayers it is, unfortunately, a case of needing to watch this space. There inevitably will be changes to the existing system but it would seem that the changes will not be transformational. Clearly any changes will be made in the context of the government’s requirement that business rates continue to raise the same revenue and as such there will be winners and losers.