How small businesses can cut their tax bill

Philip Hammond meeting businesspeople © Getty Images
Hammond (centre): a helping hand for small firms

Small businesses have been given a tax break. David Prosser explains how to make sure you claim yours.

Thousands of small shops, restaurants and pubs could miss out on valuable discounts on business rates as local authorities are applying new rules in different ways.

The confusion follows an initiative by the chancellor, Philip Hammond, to help retailers and other high-street outlets, which have seen a spate of closures in recent years amid pressures such as competition from online rivals and rising costs. In last October’s Budget, Hammond said that many smaller retail businesses – those whose properties have a rateable value of less than £51,000 for business-rates purposes – would see their business-rates bills cut by a third in the 2019-2020 and 2020-2021 tax years.

Do you need a form?

However, while the cost of the discount will be covered by central-government funding, the rates system is administered by local authorities. And while some have computer systems capable of automatically applying such discounts to any business that is eligible, others are using legacy IT systems that are not so flexible. These councils are instead asking eligible businesses to fill in a form to claim the help due, putting the onus on businesses to take the initiative. The good news for small businesses that do qualify, whether automatically or following a claim, is that the discount applies to their rates bill after all other discounts and exemptions have been applied.

That underlines the importance of checking that your overall business-rates bill is correct. In particular, if your business occupies a property with a rateable value of less than £12,000, it should be exempt from business rates entirely, while those in properties valued at between £12,000 and £15,000 pay lower bills, with the charge calculated according to a sliding scale. If you’re above the £15,000 cap, but below £51,000, check that you’re being charged the “small-business multiplier”, the formula that local authorities are duty-bound to apply here.

There is also help available for businesses in properties whose rateable values were revalued in 2017, with the government promising their bills will not increase by an unmanageable amount in one go. In 2019-2020, properties with a rateable value below £20,000 (£28,000 in London) should not face increases of more than 10% because of the revaluation (this limit is higher for larger rateable values).

In the longer term, small-business groups are continuing to lobby for wholesale reforms to the business-rates system, which they argue puts firms with physical premises at a disadvantage to rivals that trade entirely online. Such calls are backed by the Housing, Communities and Local Government Committee, which last month warned that high streets could become “ghost towns” without such reform.