Rate hike hits small firms

Much-needed business-rates relief still isn’t getting through to small- and medium-sized enterprises, says David Prosser.


SMEs may be sailing into difficult waters
(Image credit: George Clerk)

Much-needed business-rates relief still isn't getting through to small- and medium-sized enterprises (SMEs), despite a government fund announced in March to help cope with the cost of higher rates. The £300m fund was announced in the budget by Chancellor Philip Hammond, following angry complaints from MPs that SMEs around the UK faced huge increases in their business-rates bills, following a revaluation of business property values in April. But while the revaluation went ahead as planned, most SMEs potentially eligible for help have yet to receive any money.

The general election in June hasn't helped it delayed the regulation needed to get the scheme off the ground. However, another issue is that the government has left the fine print of the scheme to local authorities. Councils are free to decide who qualifies, based on the local business environment and property market.

But many are only just getting around to doing so. Cornwall County Council announced last Friday, for example, that it would use its £2.72m share of the fund to offer a 50% discount on the hike in rates in 2017-2018 to all businesses in properties with a rateable value of less than £200,000, and whose bills went up by more than 12.5%. It will offer further support in each of the next three years.

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The Federation of Small Businesses (FSB) says that nationwide many SMEs hit by the revaluation which has seen some rates bills rise by up to 50% will not get any help until the autumn, a full six months after the scheme was first unveiled. And in many local authorities, says the FSB, businesses have not yet even been told how the council plans to implement the scheme, leaving them unsure about whether they will be eligible to claim.

Despite the delays, the pressure group warns, many local authorities have already begun aggressively chasing SMEs over unpaid business-rates bills. In the worst cases, the FSB fears, some SMEs may be put out of business by their higher tax bills, with compensation arriving too late to ease their cash-flow woes.

More broadly, SME groups are pushing for the government to radically reform the rates system. Only businesses with physical premises pay the taxes, putting enterprises, and retail in particular, at a competitive disadvantage compared with online-only rivals.

How to claim some relief

SMEs can claim help with business rates using several schemes. Businesses in premises with a rateable value of less than £12,000 are entitled to 100% small-business-rate relief, so pay no tax at all. Businesses in premises worth more than this get progressively less help until the relief hits zero at a rateable value of £15,000. Also, all firms in premises with a rateable value of less than £51,000 pay rates calculated using a formula designed for small businesses, which produces smaller bills.

The government has also pledged that any business pushed over the small-business-rate-relief thresholds by this year's revaluation will not see its bills rise by more than £50 a month this financial year.

Businesses in very rural areas and in enterprise zones are also often eligible for relief, and charities are entitled to big discounts. A separate scheme for pubs means that this year you'll get £1,000 off your rates bill if you run a pub in England with a rateable value below £100,000, though ministers are still deciding how to make these discounts available. In most cases, reliefs should be granted automatically by local authorities, but check your bills to ensure you're being charged the right amount.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.