In last week’s Autumn Budget, Chancellor Rishi Sunak announced a raft of changes to the business rates system. We reported on these at the time. However, given that many of our clients are going to be affected by the changes, we’re going to use this post to look more closely at the Budget and business rates.

Background to the business rates changes

During the earlier part of the COVID-19 pandemic, the Chancellor used business rates to give some firms a helping hand. For example, he gave 100% business rates relief to businesses in the retail, hospitality and leisure sectors. This lasted until 30th June 2021. Since then, eligible businesses have been able to claim a 66% relief. This is scheduled to continue until 31 March 2022.

With business rates in the spotlight, organisations such as the CBI campaigned for major reforms to the system. Some commentators even argued that business rates should be scrapped, suggesting that this would help save jobs and generate extra corporation tax. The Labour Party also announced that, if elected, it would scrap business rates – although it didn’t provide details of a replacement system.

While the government appears to have ruled out scrapping business rates, it did conduct a review into the system. This consultation process resulted in a final report, which was published at the end of October 2021.

The review coincided with the Autumn Budget. As a result, it contains measures that were announced in the Budget. However, it also contains a ‘roadmap for the coming years’, setting out the ‘anticipated milestones’ set out in the report.

Summary of the Budget and business rates changes

In both the business rates review and in his Budget announcements, the Chancellor seems to have chosen the path of moderate reform.

The key changes to the business rates system are as follows:

  • A temporary business rates cut for eligible retail, hospitality and leisure businesses. This will take the form of a 50% discount for the financial year 2022-2023. There will be a cap of £110,000 per business.
  • Freezing the business rates multiplier for 2022-23.
  • A new ‘Improvement Relief’ that will give 12 month’s business rates relief for firms that invest in improvements to their properties. Government will consult on how to introduce this relief, which will become effective from 2023.
  • A new ‘Investment Relief’ that will provide exemptions for eligible green plant and machinery (such as solar panels, wind turbines and vehicle charging points), plus a 100% relief for low-carbon heat networks that have their own rates bill.
  • More frequent business rates revaluations. From 2023, these will take place every three years instead of every five. This will be supported by extra funding for the Valuation Office Agency. In addition, Transitional Relief and the Supporting Small Business Scheme will be extended to 2022-23. This is intended to protect businesses from major business rates increases in the final year of the current revaluation cycle.

How will these changes be funded?

The changes to business rates won’t come cheaply. The government says that the rates cut for the retail, hospitality and leisure sector will be worth £1.7 billion. Freezing the multiplier will save businesses £4.6 billion over the next five years. The new Improvement and Investment reliefs are together worth almost £750 million over the next half decade.

So where will the money come from?

The answer is likely to be from a new Online Sales Tax – dubbed the ‘Amazon tax’. Government will publish a consultation shortly, but if adopted it will probably apply a levy on online orders. The idea is to level the playing field between online retailers and bricks and mortar stores. We currently have no details about how much the new tax will be, but some suggestions have put it at 2% on online sales.

We hope this summary of the Budget and business rates changes has been helpful. As always, if you would like any advice on this topic, please get in touch with your THP account manager.

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About Jon Pryse-Jones

Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

Jon’s appreciation for THP extends to his fellow team members and the board.  “They really know how to run a successful business,” he says.  He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.

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